The Marine Insurer Issue 1 September 2019

ISSUE 1 | SEPTEMBER 2019

The Marine Insurer N AV I G AT I N G N E W S & A N A LYS I S IN THE MARINE MARKETS

Underwriting maritime’s new future

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CONTENTS | EDITORIAL

Highlights IUMI 2019 PREVIEW 04 Iumi 2019 Toronto Preview

Comment

26 Salvage Market engages with salvors and regulators to tackle rising costs

Delegates gather as climate drives new challenges

30 Aggregation

05 Interview: Richard Turner

Bigger vessels and large ports combine to create sum of all fears for underwriters

IUMI President looks to the future

06 Interview: Lars Lange IUMI continues its evolution and expansion

07 Interview: Helle Hammer IUMI to examine drive for sustainability

08 Interview: David Matcham Global major loss database continues to grow

MARINE FE ATURES 09 Arctic Shipping Drive for Arctic use creates coverage dilemma

14 Digitalisation Maritime sector embedding technology to drive efficiency

18 Autonomous Vessels Insurers working to make most of autonomous opportunities

20 Cyber Security Brokers and underwriters have their say

32 Sulphur New rules create liability concerns over breaches

38 Asia Owners want local capacity as global underwriters look to regional strategies

42 Mega ships Fears grow over ability to respond as vessel growth continues

52 Process reform Technology creates opportunities for underwriters as they seek new routes to clients

54 Process reform Marine underwriters have the first chance for insurers to get smart over contract delivery

56 Claims Risks new and old combine to test market’s mettle

60 Marine Losses Vessel losses at century low

Welcome aboard The world of marine insurance is changing and with that comes many differing opinions from all corners of the market. Our aim is to bring the best dedicated content, specific to the various classes of marine business, to this global market.

After launching the highly successful Marine Insurance London conference in 2018, we felt that the natural progression for our audience would be to bring them a high-quality print publication.

We are incredibly proud to announce the launch of our new print publication, The Marine Insurer, and to provide the marine insurance industry with its own dedicated print publication.

The second edition of The Marine Insurer will

be published in March 2020 and be a Marine Insurance London Special, and will also have a minimum print circulation of 2000. The journal is currently set to be a bi-annual (we do have hopes for it to become a quarterly). It will be produced to the highest standards to ensure that it takes pride of place in company reception areas and boardrooms throughout the market.

We hope you enjoy reading this first issue.

All the very best.

Marine sector is facing dynamic risk environment Welcome to the first issue of The Marine Insurer Magazine.

As an industry which is integral to global trade, the maritime sector all too often feels the full force of the ebb and flow of economic fortunes.

However, while the shifting balance of the global economy, west to east, continues, and the Belt Road Initiative seeks to further enhance China’s links with the developed consumer economies, for the marine sector and its insurers there are considerable challenges to be overcome.

The world’s headlines have been dominated by growing geopolitical risks with vessels and their crews now on the frontline as scenes of armed troops seizing vessels are beamed into homes around the world.

Technology is playing an ever greater part in the market and with it comes new risks to be managed and mitigated. From integrated port facilities to the arrival of autonomous vessels, marine trade and the laws and regulations that apply to it are under scrutiny.

The focus on the changing climate has put pressure on the industry to reduce emissions, but is it also opening new Arctic sea routes that will see both commercial and pleasure vessels entering ever more remote areas where the ability to respond to any incident is seriously impaired.

Against this backdrop underwriters are still seeking to drive rates which have been below technical levels for years.

This has resulted in some markets looking to exit the most stressed classes and many looking to reduce costs and enhance services in an effort to drive business.

Given its diverse and global nature the maritime sector has significant history and experience in facing new challenges and with it new risks. However, increasingly the market is facing risks which are not of its own making and insurers are working hard to find solutions that are both adequate and affordable.

Daniel Creasey and Grant Attwell Directors Cannon Events and Publications

Jon Guy, Editor, The Marine Insurer Jon@Cannonevents.com

Editor Jon Guy jon.guy@cannonevents.com tel: +44 07713 873237

Publishing Director Grant Attwell grant@cannonevents.com tel: +44 07905 933252

Published by Cannon Events and Publications © Cannon Events Limited 2019

Art Editor Rob Crotty rob@greenlightpartners.co.uk

Subscriptions An annual subscription to The Marine Insurer costs : 10 hard copy subscriptions £1000 5 hard copy subscriptions £625 Single hard copy subscription £150

Printer: Jamm Print and Production Ltd

Commercial Director Daniel Creasey daniel@cannonevents.com tel: +44 07702 835831

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Pictures: Fotolia

All rights reserved. No part of this publication maybe reproduced, stored in a retrieval system, or transmitted in any form or by any means, electrical, mechanical, photocopying, recording or otherwise without the prior written permission of the publishers. The views expressed in The Marine Insurer Magazine are not necessarily shared by the publisher, Cannon Events limited. The views expressed are those of the individual contributors. No liability is accepted by Cannon Events Limited for any loss to any person, legal or physical as a result of any statement figure or fact contained in this title. The publication of advertisements does not reflect any endorsement by the publisher.

The Marine Insurer | September 2019

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IUMI PREVIEW

The maritime sector has been embroiled in an ongoing dispute between Iran and the international community in the Strait of Hormuz.

Delegates will seek chart to navigate current and future chaos One of the requirements for the Executive Committee of the International Union of Marine Insurance (IUMI) at their winter meeting is to decide the theme for their annual conference.

I

t is not an easy task as the theme needs to reflect the issues of the day and also be applicable to the session topics across the three days of conference sessions.

It is therefore credit to the committee that this year’s topic is “Confronting the Chaos for a Sustainable Future”.

Delegates heading to Toronto for the event will have had a good idea that sustainability would be on the agenda.

Sessions on the implications for the sulphur cap and its

This year’s topic is “Confronting the Chaos for a Sustainable Future”. Delegates heading to Toronto for the event will have had a good idea that sustainability would be on the agenda.

The Marine Insurer | September 2019

introduction at the end of the year is a core topic as is the marine insurance sector’s role in the delivery of sustainable insurance contracts which is being driven by the United Nations who will speak at the event.

The energy workshop will look at the rise of renewables and the challenges of decommissioning but for many the talk will focus more on how the industry confronts the chaos its clients’ currently face.

With a month to go before the event the maritime sector was embroiled in an ongoing and escalating dispute between Iran and the international community in the Strait of Hormuz.

The allegations that Iranian forces had been behind the limpet mine attacks on vessels earlier this year has escalated to the seizure of a UK flagged oil tanker and threats over increased international naval activity in the Strait.

Insurers in London were quick to react with Hiscox, launching a new security product to help protect shipping targeted by nation states.

Its Malicious Vessel Seizure cover will respond to a single peril of a ship taken by a foreign government, providing loss of

hire costs and the services of a crisis management consultancy.

Seafarers unions had called for vessels to boycott the area until there is a guarantee of vessel and crew safety. There are growing concerns over the stability of global oil supplies if tensions do not diminish.

It has been a stark reminder of the growing influence of nation states on the world’s maritime infrastructure and the threat of geopolitical risk.

The President’s workshop has traditionally looked to the future and this year is no exception as digitalisation and its impact on client and carrier alike will be examined.

The workshop will also explore what the future holds for the role of the underwriter in a world where big data and technology has the potential to redefine the process of risk assessment and pricing.

That, however, looks to the future. It is the chaos of the current geopolitical environment and the raft of regulation and requirements around the drive towards greater sustainability are the challenges the market will look to confront.

IUMI PREVIEW

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Triple challenges define the market both now and in the future

The President of the International Union of Marine Insurance (IUMI), Richard Turner, has told The Marine Insurer magazine that the marine insurance sector is set for significant change and that change has already begun.

W

hen Richard Turner is asked to define the current state of the market he says his response is always the same. There is no single answer.

“I have to break the answer into three areas,” he replies.

“The current cycle we find ourselves in, the long term structural change and the external influences from across the world.”

The marine insurance sector has been in a soft cycle for many years and Turner says the results are starting to be felt where they hurt most.

“The marine insurance market is going through a painful time,” he adds. “Sadly, we are now seeing people losing their jobs. It remains a classic case of supply and demand and there has been too much capacity compared to the demand for a

long period of time.”

Turner believes the industry has to recognise the fact that in the current climate the capital providers do not hold the marine sector in the same emotional regard as those that work within it. It remains a case of purely delivering the best return on capital.

He does however believe that at some stage the cycle will turn and that the market will return to profitability. “When will that happen is something that I don’t think anyone can answer at present.”

In terms of the structural change, Turner says technology will play an increasing part in the industry.

“I think it will be a case of striking the balance between the art of underwriting and the science we can bring to the process,” he explains.

Turner does not believe that data and technology will remove the human element from underwriting but adds that the role of the underwriter will change as data and technology looks to aid risk selection and with it reducing loss ratios.

“I think those markets where a lot of human contact is required will need to see how technology can be used to enhance what they do but not to the point where they lose the benefits of human capital.”

External influences are playing a greater part in the sector with Turner highlighting the seizure of a UK flagged oil tanker in the Gulf.

“Protectionism is a threat,” he adds. “With protectionism comes a reduction in the movement of trade and that has an impact on the maritime sector and the marine insurance industry. At IUMI we want to see free trade across the world and we will support out members in their efforts.”

Turner says Brexit could have an impact if we see cargo delayed on both sides of the English Channel.

Looking to the conference itself he says: “We are delighted to be returning to Canada and we have an agenda and a theme which encompasses the issues contained in those three challenges. It is set to be another successful event and we are looking forward to welcoming our members from across the world.”

“With protectionism comes a reduction in the movement of trade and that has an impact on the maritime sector and the marine insurance industry.”

Richard Turner, IUMI

The Marine Insurer | September 2019

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IUMI PREVIEW

will provide analysis and include comment and input from the committee chairs.

The work on the new Major Claims Data Base in cooperation with BCG is continuing as well. After having had 6 member associations taking part in the pilot project presented in Cape Town in September 2019, for the 2020 Data Base 16 member associations have already confirmed participation.

It’s second Asia Forum in April 2019 in Shanghai attracted over 300 delegates and plans are already underway for the 2020 event to be held on 11/12 June 2020 in Kuala Lumpur.

IUMI also took the decision last year to use the secretariat to spearhead its lobbying work with regulators. The team in Hamburg deal directly with the International Maritime Organisation on behalf of the insurance industry.

“We are actively engaged with the IMO on a range of issues and it is our particular aim to put the concerns around firefighting on container vessels on the Maritime Safety Committee agenda in 2020,” adds Lange.

Membership is growing with Myanmar and Russia having joined since the 2018 conference and the new associate membership scheme is also proving popular. The two new associations brings the membership number up to 43.

As such IUMI has continued with its strategy to engage new countries and new markets.

“Our Asia strategy is proving a success,” says Lange. “We launched the African strategy in Cape Town at last year’s conference, and I have visited Africa on two occasions since to meet with national associations to talk about our work.”

In Latin America IUMI has focused its strategy via a cooperative agreement with Latin American Association ALSUM. “It has been a year of continued evolution for IUMI and we are pleased we have been able to make progress in a number of areas which have enhanced our services to the membership,” adds Lange. “We are now looking forward to meeting at the annual conference in Toronto. The Canadian Association have been good friends and strong partners of IUMI for many years.”

IUMI launched a cargo tutorial in October 2018, followed by a hull tutorial in April of this year.

Evolution continues for IUMI International Union of Marine Insurance (IUMI) Secretary General Lars Lange explains how the organisation has continued to drive progress in a number of areas as it looks to continued growth.

T

he past 12 months have been a busy time for IUMI and the benefits are already being seen.

Those changes have been driven by the desire to deliver greater benefits to a growing membership at a time when the global marine market remains in a state of flux.

“IUMI is evolving and continuing to do so in different ways,” Lange says. “ We are committed to enhancing the services we provide to our members.”

These enhanced services include education with the continued success of the organisation’s webinar series and its tutorials.

“The cargo tutorial was launched in October 2018 and hull was launched in April 2019,” explains Lange. “These are comprehensive study programmes and they have been well received by those in the market. There will be further modules to come in the months ahead and these with further the depth of the education we can provide.”

IUMI has also changed the delivery of its statistics. It launched the new look ”Stats Report” in April 2019 and following the close of the conference in Toronto IUMI will publish this more comprehensive statistics report again that The Marine Insurer | September 2019

‘‘We are actively engaged with the IMO on a range of issues and it is our particular aim to put the concerns around firefighting on container vessels on the Maritime Safety Committee agenda in 2020.”

Lars Lange, IUMI

IUMI PREVIEW

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Sustainability on the agenda for policymakers

The growing drive for greater environmental and social responsibility will be a dominant part of the IUMI agenda for next year explains Helle Hammer, Chair of the organisation’s Policy Forum.

T

he International Union of Marine Insurance’s (IUMI) annual conference will feature a speaker from the United Nation’s as delegates get a first hand view of what the UN are seeking from insurers when it comes to social responsibility.

The weeks before the organisation meets in Toronto will see the UN open the dialogue for the insurance sector on how it delivers sustainable insurance products and it is a topic that Ms Hammer believes IUMI needs to be fully engaged in.

“There will be a call for comments on the topic of environmental and social governance and the delivery of sustainable insurance in September and IUMI will look to respond,” she explains. “The issue is one that will grow in importance and that is across the business community not just insurance. We are seeing it with banks and it is being driven by customers who want to see greater environmental responsibility from businesses.”

It is for that reason that the Policy Forum session at the conference will feature a speaker from the UN. “We want to ensure the membership are aware of the discussion and the aims of the United Nations in terms of sustainable insurance,” adds Hammer.

“The responsibility will be down to the companies themselves but we are looking at the role IUMI needs to play on IUMI will address the issue of implementing behalf of our members. We need to take the section of the Polar part in the discussions, we cannot as Code for non-Solar an industry, wait until new regulations vessels. around the question of sustainability simply arrive.”

The year has also seen progress on a number of other fronts many in conjunction with the Maritime Safety Committee at the International Maritime organisation.

The first is the move to address the issue of implementing the section of the Polar Code for non-Solar vessels. The MSC is currently urging Member States to take steps, on a voluntary basis. to implement the Code’s requirements.

However Hammer says IUMI is hoping that the rules will change and it will not be left to choice.

“We very much support the moves by some Member States to make the Polar Code mandatory,” she explains. “ It may eventually mean changes on SOLAS but we are hopeful of progress.”

The Main point for IUMI has been to address the delivery of compliant fuel oil by suppliers. A joint MEPC-MSC circular was approved earlier this year, recommending that Member States take appropriate action to ensure that fuel oil suppliers under their jurisdiction deliver compliant fuel.

“The biggest priority for the year has been the efforts to improve firefighting on large container vessels,” she adds.

“At present there is not sufficient capacity to fight fires on these larger vessels and we are hoping to see changes to the regulations to ensure that the capacity to tackle fires should they break out is increased. There is also a great deal of work underway to tackle the misdeclaration of cargo and how we can reduce the risks of fire breaking out on board.”

“There will be a call for comments on the topic of environmental and social governance and the delivery of sustainable insurance in September and IUMI will look to respond.”

Helle Hammer, IUMI

The Marine Insurer | September 2019

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IUMI PREVIEW

IUMI claims database continues to progress

The International Union of Marine Insurance’s (IUMI) efforts to create a global large loss database was piloted last year. IUA Chief Executive David Matcham, who sits on IUMI’s Facts & Figures Committee & Policy Forum explains how greater numbers of members are joining the project.

W

hen Dave Matcham reported the results of the pilot scheme for the creation of the large Loss Database in Cape Town last year it was seen as the start of something big.

When IUMI examined the potential for such a database the benefits were clear. There are no underwriters who have a complete view of the global loss levels in the hull and cargo classes. It is a particular issue for the cargo underwriters given the diverse and sheer scale of the market. Therefore the decision was taken to look to create the database that would chart large losses over and above $250,000.

The work of 2018 more than proved the concept. Six pilot member associations were involved, Germany, Belgium, Sweden, Japan, Singapore and the Netherlands.

IUMI recruited one of its professional partners the Boston The Marine Insurer | September 2019

Consulting Group to act as an independent party, engaged to cleanse the raw data, eliminate inconsistencies and identify trends and conclusions.

The plan for the year was to increase the participation of member associations and to do so the project team created a simplified form that would enhance the speed and ability for members and their companies to compile the necessary data.

Data is submitted anonymously; and to avoid overlap, data is only collected from national organisations where their members have led on a particular claim.

The data is also delivered in a standardised format from member companies.

Since IUMI’s last annual conference in South Africa, eight members have joined the database, including France Italy, Spain Australia and New Zealand.

Matcham who in his role on the Policy Forum also liaises with IUMI’s Fact & Figures Committee is the project manager for the database and believes that it is There are no underwriters who have a complete continuing to move towards its desired view of the global loss function. levels in the hull and “When we created the idea for the cargo classes. database we were looking to bring together the loss data from the global membership in order to provide the ability for underwriters to identify trends and analysis on a global level that will allow them to examine data in order to analyse major losses with respect to loss severity, frequency, location and cause.

“It is hoped this will provide support for underwriters when it comes to pricing and capital allocation.”

However, Matcham says the next step will be to engage with some of the bigger markets to ensure the database is better able to deliver the support IUMI hoped it would be able to achieve.

“The aim now is to move forward in terms of completing the data set. We are now in dialogue with the USA, Lloyd’s and Cefor (The Nordic shipping association), but the aim is to bring all the members of the organisation into the loss database.”

‘‘When we created the idea for the database we were looking to bring together the loss data from the global membership in order for underwriters to identify trends and analysis on a global level.”

Dave Matcham, IUA

ARCTIC SHIPPING

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Arctic Shipping: New risks,new opportunities The number and variety of vessels plying sea routes in the far north has been growing steadily for several years. Peter Birks reports.

While the headlines have covered the increasing number of vessels on the Northern Route from Asia to Europe, of equal significance is the far larger number of cruise vessels taking passengers to – for the moment – unspoilt waters, as well as the increase in the number of fishing boats exploiting the changing habits of North Atlantic fish stocks.

All this has increased the demand from shipowners and cruise companies for Arctic-specific cover – protection that might require detailed actuarial and risk-assessment work to ensure the setting of a sustainable price.

Fears over the lack of infrastructure to offer support and rescue for vessels which find themselves in distress have

The Marine Insurer | September 2019

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ARCTIC SHIPPING

tightened the terms and conditions imposed by underwriters.

At present, cover is on a risk-by-risk basis. However, an increase in traffic and a move away from bespoke to “normal” could see the development of core wordings that will make underwriting easier and, for the customer, reduce uncertainty as to whether or not they are covered when an incident occurs.

The International Code for Ships Operating in Polar Waters (Polar Code) entered into force at the start of 2017. This required all new cargo vessels of 500 gt or more, and all new passenger vessels, to comply with the safety part of the Polar Code. Ships constructed before January 1st 2017 have to comply by their first intermediate or renewal survey, whichever comes first, after 1 January 2018.

An interesting point here is that, although “Arctic Shipping” has been discussed at length, many are stumped when they are asked to define where “the Arctic” starts. Unlike the Antarctic which starts at 60 degrees south and continues south to the South Pole, the Arctic is not so simply defined. Its baseline is indeed 60 degrees north, but the circle it is modified to encompass the coast of Greenland, through to the Russian Arctic coast in the Barents Sea. This means that the Polar Code does not affect Iceland, Norway and the Kola Peninsula in North West Russia, because for the majority of the year they are ice free.

Types of Polar Class vessel are more specific than Polar Ship Certificate. (See box on Page 11.)

However, the Polar Ship Certificate has only three classes: A, B and C. Class A covers PC1 to PC5. Class B covers PC6 and PC7. Class C covers operations in open water or in ice conditions less severe than those defined in categories A and B. Clearly, insuring vessels in the Arctic requires an assessment of vessels going beyond just the classes of the Polar Ship Certificate. Cover and premium that might be offered for a PC1 vessel, on a facultative or an annual basis, could be completely unsuitable for a PC5 vessel, even though both might have Polar Ship Certificate A.

THE “ICE CLAUSE” North of England P&I Club has noted that, when operations to ports within ice areas are expected, the charterparty will contain an “Ice Clause”. The BIMCO Ice Clause for Time Charter Parties, for example, states that the vessel is not required to force ice but, depending on the individual vessel particulars, may follow ice breakers. This clause clearly states that the vessel shall not be required to enter a port if the Master considers it unsafe.

FACTORS EXTENDING THE “OPEN PERIOD” With cruise ships, fishing trawlers, dry bulkers and tankers all looking to exploit Arctic routes during the period when they are navigable, improvements in icebreaker technology have increased the proportion of the year when such transits/visits can take place.

This combination of increased demand, improvements in The Marine Insurer | September 2019

ship capabilities, and an increasing percentage of the year in which vessels can operate within the area defined as the Arctic, make almost impossible the creation of a commoditized product. If such a pricing system was designed, it would be out of date within a year.

SEARCH AND RESCUE DIFFICULTIES One of the major potential challenges facing ship operators in the Arctic or Antarctica, according to the 2019 Expedition Market Report from Cruise Industry News, is a lack of available search and rescue (SAR) resources. It is one thing being called out to rescue a fishing vessel with, say, 20 fishermen on board, but it is quite another to rescue more than 1,000 passengers on a cruise ship who might have no idea what to do in case of an emergency.

Cruise ship Viking Sky nearly grounded near Molde on the west coast of Norway on March 23rd, with 1,378 passengers and crew on board. Her four engines failed, causing her to drift dangerously close to shore near the town of Hustadvika. The ship was able to drop anchor and restart power to one engine, and that alone stopped Viking Sky running aground along the rocky shoreline. The ship then struggled against waves six to eight metres high as she slowly moved into deeper water. At the same time rescue teams on board helicopters were hoisting nearly 500 people to safety, 15 to 20 at a time, from the deck of the ship.

In the case of the Viking Sky incident, several vessels and helicopters, both from the rescue services and from the offshore industry, were made available, but, because of heavy seas, only the helicopters could be used.

Eventually an ocean tug attached a tow line to the Viking Sky and helped her reach the port of Molde, Norway, where the remaining passengers were disembarked on Sunday afternoon.

It took 19 hours to airlift just 463 of the 1,373 guests and crew on board, using four to five helicopters. Before all the passengers were rescued the vessel regained some power and moved away from imminent danger of grounding on rocky reefs. Given the hazardous nature of helicopter rescue in bad weather, it was considered less of a risk to keep the passengers on board the ship as she limped to port.

If such an incident occurred further north, say, near Svalbard, there might be only one or two vessels and two helicopters available, while the hospital in Longyearbyen might only be able treat two to three seriously injured people at a time. Medevacs to the mainland of Norway would take several hours. If a cruise ship got into trouble off the east coast of Greenland or in Franz Josef Land the search and rescue resources would be even more scarce.

Although emergency plans are in place for Svalbard and there are frequent exercises, they are necessarily on a relatively modest scale.

Another incident that caused concern, and logistical difficulties, was that of fishing trawler Northguider. This grounded in Hinlopen on Svalbard on December 28th last year,

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MV Akademik Ioffe and research vessel MV Akademik Sergey Vavilov had been leased from Russia since 2011 and 2012 respectively. The vessels carried fewer than 100 passengers on Arctic and Antarctic cruises.

They were seized earlier this year when the vessel owners unexpectedly decided to return the vessels to Kaliningrad, Russia, for purported repairs. The OOE has taken legal action, but still had to cancel a number of cruises. This was an odd event all round, and one interpretation could certainly be that it was an example of Russia flexing its muscles in the Arctic sector.

UPWARD TRAJECTORY

THERE ARE SEVEN TYPES OF POLAR CLASS VESSEL: > PC1: Year-round operation in all ice-covered waters > PC2: Year-round operation in moderate multi-year ice conditions > PC3: Year-round operation in second-year ice which may include multi-year ice inclusions > PC4: Year-round operation in thick first-year ice which may include old ice inclusions > PC5: Year-round operation in medium first-year ice which may include old ice inclusions > PC6: Summer/Autumn operation in medium first-year ice which may include old ice inclusions > PC7: Summer/Autumn operation in thin first-year ice which may include old ice inclusions.

but it could not be removed before August. Put simply, any Arctic hull salvage is likely to be too dangerous to undertake in winter weather.

THE NORTHERN SEA ROUTE The Northern Sea Route has the potential to cut the transit distance between Europe and Asia by 40% and could become an international highway in a more open Arctic. However, arguments between the US and Russia over the route date back to the 1960s. Russia considers the passage a territorial water over which it has control. The US has declared that the lanes must be open.

Russia is building new ports to boost shipments along the route.

Discussions over the supply of Russian gas to China through the “Power of Siberia Two” (the Western Route) are at an advanced stage. Work on Power of Siberia One, (the Eastern Route), is expected to transfer 38bn m3 of gas to China every year.

The political risks associated with the Northern Route were highlighted when Russia seized two cruise ships leased by Canada-based cruise company One Ocean Expeditions (OOE) from the Russian state.

The US Coast Guard reported a more than doubling of Bering Strait traffic from 2008 to 2012, and the number of vessels/ total tonnage has continued its upward trajectory since then.

However, on the US side, Barrow, at the northern tip of Alaska, is generally accessible only by air, it currently has little cellular coverage, and limited SAR availability. The nearest USCG air station to Barrow is in Kodiak, 1,000 miles away.

Much of the need to increase SAR capability on the Alaska side of the Bering strait will fall on the USCG, but this comes exactly at the time when it is underfunded and understaffed.

This will be an ongoing theme in the Arctic.

In 2011 Russia and the US created the Arctic Search and Rescue Agreement, one of the few areas where the two countries were in accord, and one agreement achieved during the Obama era that President Trump does not seem to have torn up.

Russia has been developing 10 SAR bases along its Northern Sea Route, alongside more militarisation in the same area.

Russia has the largest population (four million) living above the Arctic Circle.

Meanwhile. In the Arctic above Canada, the Northwest Passage is becoming a viable trade route to a greater extent every year. As the ice thins and any potential sea lane becomes wider and more viable for a greater period of the year, the political implications are not yet clear. The sea route stretching from Baffin Bay to the Beaufort Sea runs through Canadian waters. The Canadian government would like to see this recognized as their own territorial waters, while other maritime powers, particularly the US, want to see the region being defined as an international highway.

The International Maritime Organization (IMO) offered advice and guidance at the third Arctic Shipping Best Practice Information Forum held in London, UK, at the beginning of June. The Forum, organized by the Arctic Council, supports the effective implementation of IMO’s Polar Code. The theme was “’From Theory to Practice”. IMO recently became an Arctic Council Observer.

The Arctic Shipping Best Practice Information Forum was established in 2017 by the eight Arctic States (Canada, Denmark, Finland, Iceland, Norway, Russia, Sweden and the US) to help raise awareness and to promote the effective implementation of the Polar Code.

The Marine Insurer | September 2019

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MARINE | TERRORISM In association with

A call for immediate response As geopolitical tensions mount and threats to shipping rise, Alistair Johnston (below left), Maria Borg Barthet (centre) and Richard Pryor of international law firm Campbell Johnston Clark suggest existing marine insurance arrangements may need to be re-evaluated. marine insurance’s role in addressing climate and environmental risks.

Whether due to cyber-attack, migrant encounters, kidnap and ransom in the Gulf of Guinea, the hijack of ships and sale of cargoes in Nigeria, or the military boarding and detention of commercial vessels seen in the Arabian Gulf, the vulnerability of the maritime world is increasingly visible.

With recent geopolitical developments heightening the risks, shipowners should be continuously undertaking due diligence appraisal of risk management arrangements.

Accordingly, CJC has appointed Richard Pryor as a special consultant and established a specialist unit to help owners and operators review their insurance arrangements and strengthen them where necessary.

Pryor, who trained and served in the UK’s Royal Marines, is CJC’s Response Consultant and is ‘on call’ for immediate risk response, crisis The Marine Insurer | September 2019

management and issue resolution for clients. Together with other members of the team, he also provides training and consultancy services on up-to-date risk management essentials and emphasises the importance of keeping Company Security Officers, Ship Security Officers and Port Facility Security Officers fully current with latest developments. He is currently preparing material for a presentation he will make at this year’s International Marine Claims Conference to be held in Dublin in September.

A RANGE OF NEW RISKS This appointment reflects the fact that risks have changed dramatically for ship operators in recent times and that standard insurance and risk management arrangements may now fall far short of what would be prudent. Of course, ship-

owners are well aware of their duties of care for crew, passengers, cargo and the environment. But there are many more risks today which may require review and possibly new arrangements.

Some of the most important risks identified in the ISPS Code, a part of the SOLAS Convention, include ship-related issues such as collisions, groundings and fires, but also a range of external risks including terrorism, migrant encounter, piracy, hijack, cyber-attack, activism, sabotage and stowaways. A number of these risks are relatively new and some may not be covered by conventional marine insurance policies, particularly if appropriate risk management systems have not been put in place.

Migrant encounters is a good example, as two recent instances involving vessels being overrun by migrants who then took control demonstrate.

For marine insurers in London, one of these incidents could hardly have been closer to home: last December, the 71,543gt Grande Tema was held up in the Thames Estuary by four stowaways who had boarded the vessel prior to her departure from Lagos, Nigeria.

The stowaways were discovered en route and confined to a cabin but they subsequently broke free, armed themselves, threatened the crew and demanded that the ship sail closer to shore so that they could swim to land. The ship’s crew locked themselves on the bridge and called for assistance. A few days later, a team of UK special forces boarded and re-took control of the vessel.

In another case, the Turkish-owned El Hiblu 1, a bunkering tanker, rescued 108 people including men, women, children and babies from the Mediterranean Sea in March. A small contingent of those rescued took over the vessel and forced ship’s officers to navigate not to Libya where she had been bound, but north towards Europe. A Maltese special operations team later regained control of the tanker.

NEW ASPECTS OF TERRORISM Acts of marine terrorism may no longer

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be limited to fanatical groups. At the time of writing, there appears to be no sign of progress in the tit-for-tat seizure by Iranian military forces of the UK-flagged 49,683dwt products tanker, Stena Impero, as it navigated international waters in the Arabian Gulf.

The Iranian move followed the arrest of the 300,579dwt VLCC, Grace 1, by UK Royal Marines in the waters off Gibraltar. The tanker had allegedly been heading for the Banyas oil refinery in Syria, in contravention of European sanctions on that country.

Also of concern is the growing risk of using commercial vessels themselves in acts of terrorism. The ‘vessel as a weapon’ is a growing threat, used in grounding or a blockade, for example, or perhaps when taken over by militants and used as a floating, mobile hazard.

Specific risks also exist in the passenger ship sector. Do cruise operators, for example, have the appropriate risk management systems in place to handle a group of militant fanatics who succeed in boarding a vessel, taking hostages and terrorising passengers? What is to stop cross-Channel ferries being targeted by armed terrorist groups?

CYBER ATTACKS Cyber security, though hardly new, is nonetheless a still-developing aspect of risk management where shipowners and operators may have inadequate cover.

Well-known examples of cyber incidents include the Port of Antwerp attack and the NotPetya attack on the world’s largest container line, Maersk.

Also of note though is an email phishing scam targeting an oil rig.

In this case, the attack was aimed at identifying the crew’s credit card numbers, many of which are often set out in groups of four. On board this particular rig, the ballasting arrangements in the platform’s four legs were also controlled by groups of four numbers. The phishing scam seriously disrupted the unit’s safe ballasting arrangements leading to a risk of capsize.

Shipping’s rapid digitalisation pro-

Image: Fotolia

MARINE | TERRORISM In association with

FOR MARINE INSURERS IN LONDON, ONE OF THESE INCIDENTS COULD HARDLY HAVE BEEN CLOSER TO HOME: LAST DECEMBER, THE 71,543GT GRANDE TEMA WAS HELD UP IN THE THAMES ESTUARY

BY FOUR STOWAWAYS WHO HAD BOARDED THE VESSEL PRIOR TO HER DEPARTURE FROM LAGOS, NIGERIA.

cess now means that many previously manual procedures are managed by software and controlled electronically. However, many hull and machinery insurance policies still include Institute Clause 380 – the Cyber Attack Exclusion Clause – which dates from the early days of computers and software on ships.

As its name suggests, this excludes cover for loss, damage, liability or expense ‘directly or indirectly caused by or contributed to or arising from the use or operation, as a means for inflicting harm, of any

computer, computer system, computer software programme, malicious code, computer virus or process of any other electronic system’.

SYSTEMS CHECK There are no simple answers to all of these issues. In light of recent developments, owners and operators – indeed, everyone involved in shipping’s global supply chain – should therefore re-examine their risk management and insurance arrangements. Are their systems as robust as they should be?

A review of existing systems can often identify gaps in cover or areas in which arrangements could be strengthened. A good risk management plan for ships, other offshore assets and port facilities is best organised as a layered approach.

If one level of security is breached, what is the next level, and how vulnerable is that? Furthermore, what are response times if, indeed, an owner has his/her own resources?

Certainly, having formalised risk response arrangements is essential for ships, rigs and ports in an era of growing risk from third parties.

In many cases, having to wait for emergency response without any initial mitigating capability may well be too late.

The Marine Insurer | September 2019

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MARINE |

DIGITALISATION

Digital futures: reshaping the marine insurance market

The Marine Insurer reports on the constantly evolving digital ecosystem in which marine underwriters now operate, where a proactive approach is needed if they are to grow.

Embracing technological change has become one of the key drivers of success in a highly competitive marine insurance market where pressure on margins is greater than ever.

Where underwriters once relied purely on experience and gut feeling to determine the quality of a risk, they are now presented with a range of tools that can help inform the underwriting process.

This is not unique to the marine insurance sector, with classes of business such as property having long benefited from modelling tools to help shape underwriting and portfolio management.

The difference for marine underwriters is that many of the tools to help facilitate their underwriting approach are relatively new to market.

And the intense competition among marine insurers increases the need for successful adoption of those technologies which can help reduce the cost of providing cover.

The Marine Insurer | September 2019

Marine insurers now find themselves operating in a constantly evolving digital ecosystem, at a time when the shipping sector they serve is also undergoing a rapid technological overhaul.

These changes are taking place in a marketplace where marine insurers are facing the dual challenge of improving profitability and reducing costs.

At Lloyd’s, the Decile 10 initiative has led to a significant withdrawal of marine capacity, with many international marine underwriters responding by reassessing their own appetite for risk in the current pricing environment.

While the insurance sector has traditionally struggled to integrate new technology with its longstanding processes and legacy systems, successful adoption of emerging tools is now critical to future success in the maritime domain.

DRIVING PROCESS CHANGE Data and technology can play a major role in informing the

MARINE | DIGITALISATION

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risk selection. underwriting process and portfolio man“When applied to the portfolio, a natural agement. But before this can be done, segmentation occurs identifying previously the first step for marine insurers is to unknown sources of risk and opportunity. harness emerging data and technology “There is an ocean of data available, Underwriters can use this segmentation to tools to drive process improvement and target profitable segments or behavioural increase productivity within their own ranging from premiums, claims and profiles that represent a positive impact organisations. on their portfolio. Similarly, underwriters Ronny Reppe, co-founder and chief coverage information to the streams can predict loss from existing accounts, executive of Noria Group, says data remediating and rebalancing the portfolio visualisation can serve as a source of of data that now flow from connecttowards a more profitable mix,” he says. deep insight into business operations, and can drive innovation within the ed IoT-enabled devices, social media, insurance sector.

EARLY STAGES To achieve this, Reppe believes it is and customer feedback.’’

The tools available to help marine vital for collaboration to unlock silos of insurers better manage risks take information and data, which can in turn several forms. help inform the value offering provided Automatic Identification System (AIS) Ronny Reppe, by marine and energy brokers and data now plays a more prominent role Noria Group insurers. in tracking vessels, vastly increasing Reppe says one of the first key steps is the amount of information available to to collect all the data available within your insurers as to what is happening on the oceans. organisation. “There is an ocean of data available,” he says, ranging The emergence of smart contracts and blockchain from premiums, claims and coverage information to the streams technology is another driver of change within the marine of data that now flow from connected IoT-enabled devices, social insurance sector. High profile blockchain projects within the media, and customer feedback. sector have included the Insurwave initiative, a joint venture “There’s still a surprisingly amount of data contained between EY and Guardtime with the backing of several within spreadsheets on the hard drivers of both brokers and prominent brokers and insurers. This platform has aimed underwriters. The more data that you can extract from these to streamline the transactional process for the placement of spreadsheets and feed into the insurance process, the more marine insurance risks. value you can get out of it.”

Several other broader re/insurance industry blockchain initiatives are in development which could also be applied to ENHANCING UNDERWRITING STRATEGY the marine insurance sector.

Mark Phillips, head of sales at Concirrus, says many marine A recent study by Lloyd’s identified marine cargo as one area insurers are now using data, usually visualised through one where smart contracts, in which computer code can determine or the many business intelligence tools available on the market. whether a payout is due based on its defined data inputs, “These are used to inform specific transactions or decisions could have an important role to play in modernising insurance but aren’t capable of enhancing the underwriting strategy,” processes.

Phillips says.

Pricing cargo insurance has long been a challenge to the For marine insurers to take this next step, Phillips says they market, with risk models struggling to capture factors that may need to make data central to the view of risk and improve determine the quality of the risk they are insuring. capability, so it can be applied throughout the workflow, from Lloyd’s has engaged Zuhlke Engineering, a software and pricing to exposure management. hardware development consultancy, to work with the market to Portfolios have traditionally been assessed on a traditional understand how it can enhance cargo modelling capabilities. mix of tonnage, vessel type, vessel age and yard built.

The next step, currently in process, is to conduct a short Now, Phillips believes there are tools available that mean trial tracking a small number of cargo types and routes, in an the actual risk profile of each vessel can be assessed on a attempt to extract real business value from engaging with the predictive basis, incorporating thousands of data points and Internet of Things. their relationship to loss.

Several other companies are working to enhance the cargo “Within machine learning environments, third-party sensor insurance process, with sensor technology increasingly being and maritime intelligence data can be combined with an insurer’s adopted across the marine insurance sector. exposure, policy and claims information to generate new dataSteve Harris, senior vice president of the marine cargo driven risk insights that are predictive of loss,” he says. practice at Marsh JLT Specialty, says additive manufacturing, Phillips says this new risk methodology can be used to commonly known as 3D Printing, is another area of generate predictive technical pricing, as well as to improve The Marine Insurer | September 2019

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DIGITALISATION

exposure, sanctions activity and even development that presents enormous pre-claim detection.” potential to the sector.

While this may sound like it is “It will mean that spare parts for some way away, Phillips says these vessels could be manufactured where “A combination of technologies technologies already exist and are being the vessel needs them, often on the other used by the market. side of the world to the manufacturer’s will make a huge impact on how we Marine war risks are one example location,” he says. where digital tools could play a more “One of the large costs currently for underwrite policies in the future. prominent role. ship operators is the need to carry lots “Within a digital toolset, the captain, of spare parts, with most of them never A combination of blockchain, the owner, broker and insurer would be being needed – a redundant expense. notified automatically when a war “This technology could lead to fewer internet of things (IOT) and robotics, entry occurs, and premiums would be spares being carried, if operators feel automatically adjusted and collected. that any damaged or defective part can artificial intelligence and machine Given that acquisition costs for war can simply be “re-created” in various major reach 60% in some cases, the benefits of ports around the world.” learning will change the future.’’ digitisation are obvious,” he says.

Ranjith Kanipayur, head of business “If you already have the capability to transformation at The Shipowners Ranjith Kanipayur, monitor war digitally, you can monitor Club, believes many of the technologies The Shipowners Club any vessel in any situation. And, if emerging in the marine insurance sector you have the underlying data to price remain in their early stages of maturity.

“A combination of technologies will and segment and identify candidates for such coverage, then you now have an end to end underwriting process which is make a huge impact on how we underwrite policies in the constantly searching for these new opportunities.” future. A combination of blockchain, the internet of things With sensor technology gaining traction and the cost of (IOT) and robotics, artificial intelligence and machine learning satellite imagery coming down, these developments create will change the future. potential for the traditional annual marine policy to become “These technologies will require another three to five obsolete in future years. years to mature,” he said. “Many companies are still in the exploration stage where they are trying to implement small proof of concept or pilot schemes.

THE FUTURE “They will soon start facing challenges as to how they The role technology plays in the marine underwriting process scale up these technologies. As the technologies mature and will likely continue to evolve. with improvement in satellite and network communications, Data and technology are already being used to develop new new offerings will emerge that simplify the current products views of risks which in turn can inform better pricing and available to shipowners, such as pay as you go cover. monitoring of coverages.

As marine insurers adapt to this new world, one of the major “The missing piece which has been the holy grail, not just in challenges is the sheer volume of information that can be marine insurance but across all the insurance lines over the generated. past 20 years is dynamism in how risks are written, and how portfolios are managed,” Phillips says.

“Once you have third party data, internal claims, exposure DIGITAL ENVIRONMENT and policy information in a machine learning environment that Without data scientists on hand, this can be hard to digest, and sits behind a digital toolset, this becomes a real possibility.” as such insurers require a digital environment that deploys all This vision would see inbound risks dynamically assessed the data and analytics in a consumable, user-friendly way. for their impact on the portfolio, while capacity utilisation “Without the digital applications, underwriters are unable to updates could be provided in real-time. consume the information and are unlikely to engage in its use,” Constant portfolio modelling could then provide guidance Phillips says. as to loss ratios and recommendation engines could make “Adopting data and behavioural analytics helps to identify suggestions to underwriters on a range of steps such as new sources of risk and opportunity. Underwriting teams purchasing reinsurance. can then develop new coverage types, price them using the “In this way the role of the underwriter starts to move available data and rate them in a digital system that delivers away from the assessment of individual risk towards the real-time insights associated with the risks. management of a portfolio or “risk fund.” Risks will be traded “Once bound, individual risks and indeed the entire in real-time, facilitated by blockchain marketplaces, and portfolios can be actively monitored by intelligent systems fractional policies will become common place.” that alert underwriters or risk managers to changes in peak The Marine Insurer | September 2019

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18

AUTONOMOUS VESSELS

Below: Rolls-Royce and Finnish ferry operator launched a demonstration ofthe world’s first fully autonomous ferry.

Inset: the Norwegian firm Yara International autonomous container vessel which will enter service in the next two years.

Evolution will come with revolutionary steps in autonomous transport The move towards autonomous vessels is gathering pace with fully autonomous commercial vessels set to become a reality in the next 12 months. However, there are still obstacles to be overcome before crews are no longer needed on the world’s seas.

Jon Guy reports.

Autonomous vessels have been a reality for a decade.

While technology continues to create new ways for vessels to be remotely operated the jump to its use in sizable commercial vessels has already been made.

Earlier this year Rolls-Royce and Finnish state-owned ferry operator Finferries successfully carried out a demonstration using what is the world’s first fully autonomous ferry. The Falco was able to travel from Parainen to Nauvo off the coast of The Marine Insurer | September 2019

Finland using fully autonomous systems and make the return voyage under remote control.

The two companies said during the voyage the ferry was able to detect and avoid objects and instigate a system of collision avoidance. It was also able to berth under its own systems.

The Nordic countries are not standing still with the Norwegian firm Yara International having ordered the new build of a fully autonomous container vessel that will also produce zero emissions.

The expectation is that the Yara Birkeland will enter service next year and within two years will be in a position to load cargo and operate with no human on board the vessel.

Once in service, the Yara Birkeland will transport bagged fertiliser in containers thereby removing around 40,000 annual truck journeys from the roads.

Norwegian marine insurer Gard is working on the project as is the Norwegian government which has pumped US$16 million into the initiative.

The fear for many has been how autonomous vessels will be able to react to human error on other vessels with the potential

AUTONOMOUS VESSELS

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support and speed up developments in solution the creation of autonomous maritime automation.” vessel shipping lanes.

Autonomous operation presents Finnish innovation accelerator a number of risk “unknowns” one DIMECC (Digital, Internet, Materials of which is assessing the risk of an & Engineering Co-Creation), has also environmental disaster. The concern is created One Sea, a consortium that “Insurance companies are that with no crew on board if disaster cooperates with marine technology and strikes how will any containment ICT pioneers and owners, ports, safety embracing new technologies and operation be implemented in time? organisations (including EMSA), class Allianz in its study into the issues societies and academics. developing broad, wide-reaching says: “Then there are potential issues While encouraged by the progress around cargo management and safety One Sea believe there remain two major cover for a range of different risks.’’ in the absence of crew; fire protection; barriers to movement. stability, draft and hull integrity and Päivi Haikkola, DIMECC Ecosystem security; and cyber risk - which many Lead for One Sea says: “The One Sea Daniel Fletcher, believe will increase. For example, if ecosystem envisages autonomous Chubb Europe an incident occurs on an unmanned maritime transport by 2025, and vessel, such as a spoofed GPS signal, there is strong momentum for how long will it take to discover what is greater connectivity ship to shore and digitalisation; but no single organization can reap the full happening? The cyber security platform has to become more benefits. It is in everybody’s interest that different systems can robust given the large amounts of data transmitted – especially talk to each other and that ship owners are free to choose their for unmanned ships.” technology providers, for example we believe that both can be “Fully automated shipping may be possible from a technical achieved by standardising interfaces; this is something that perspective, but on a global scale it may not happen given the needs the buy-in of the companies providing the products.” navigational challenges of entering ports and congested routes, “Getting the international regulations in place is crucial for the as well as the challenges of operating in storm conditions. It is business case, so we are very much following the process at IMO hard to see how vessels can operate without crews to deal with and also participating through the flag states. We are delighted emergency situations,” says Chris Turberville, Head of Marine to see that IMO has taken steps to tackle this matter as fast as Hull & Liabilities, UK, AGCS. “Autonomous technology has possible and we expect to hear output from the current scoping the potential to improve safety, but a critical element will be exercise at MSC 101. From One Sea’s perspective, we feel that whether there will be sufficient backup when things go wrong.” there is a need to keep IMO fully informed on technologies and advances in a fast-changing sector.”

HURDLES Having said that underwriters still believe it will have less hurdles than other autonomous systems such as cars.

REGULATORY ISSUES The International Underwriting Association (IUA) has carried There are numerous legal and regulatory issues that need to be out its own research into the view from the London market resolved. When maritime law and conventions were to autonomous vehicles which found there is a willingness to drafted the ability for vessels to operate without crews was offer cover. never considered and as such at present vessels require a masThe IUA’s Developing Technology Monitoring Group ter and crew on board.

(DTMG), was established two years ago to examine how new The International Maritime Organization is already underway technologies would impact upon various classes of insurance with work to determine if and how existing international business. regulation could be applied to autonomous vessels.

Underwriters expressed concern about a lack of associated Insurers are embracing the benefits autonomous vessels will infrastructures for autonomous modes of transport, as well as bring but remain cautious around the risks that maybe created cost, technological capability, public perception and regulation. with no human crew on board.

Daniel Fletcher, technology practice manager at Chubb “The potential use of automation goes well beyond the Europe and Chairman of the DTMG, said: “Insurance vessels themselves, stretching the entire length of the cargo companies are embracing new technologies and developing movement chain. Autonomous technology has the potential broad, wide-reaching cover for a range of different risks. The to revolutionise the movement of cargo on a scale not seen expansion of such products generally mirrors the rate of since containerization was introduced some 50 years ago,” says development for the technologies themselves.

Captain Andrew Kinsey, senior marine risk consultant at AGCS. “Autonomous vessels could represent a significant potential “Yet despite unknowns and regulatory issues, autonomous growth area for the London Market with a quarter of the shipping will happen. It’s just a question of when and how. companies responding to our research stating that they are And it is possible that the current economic pressures on the considering launching a product in this field.” shipping industry and the need to find efficiencies, could even The Marine Insurer | September 2019

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CYBER SECURITY

Slow take-up in insurance for

cyber attacks Cybersecurity threats are up, but costs and lack of standard cover deter take-up, reports Martina Li. While technology continues to create new ways for vessels to be remotely operated the jump to its use in sizable commercial vessels has already been made.

Even after the Petya ransomware attack that hit Danish maritime group AP Moller Maersk’s worldwide computer systems in June 2017, the global marine insurance market is not seeing a rush yet for cyber cover.

This is despite cyber risks having to be adequately addressed in ship safety management systems by 2021.

AP Moller Maersk’s various business units, which are active in container shipping, drilling, salvage and terminal operations, among others, were all affected by Petya, resulting in lost revenue of around USD 300m.

A year later, in July 2018, a ransomware attack targeted Chinese shipping group COSCO’s Internet connection within its US offices.

Although the damage was less severe than what AP Moller Maersk suffered, COSCO said then that local email and network telephones were not working properly and the company decided to switch off the connections with other regions for further investigation.

One of the factors deterring risk assessment and thus, takeup of insurance for cyber attacks, is the difficulty in defining damage resulting from a cyber incident.

The Marine Insurer | September 2019

QBE Singapore’s head of marine, Rama Chandran, told The Marine Insurer that cyber incidents in the marine space can be classified into three broad categories: physical loss and/or damage arising from a named cyber peril, business interruption (which may not necessarily result from physical damage), and loss or theft of data.

Rama explained: “A key consideration for marine insurers is the systemic nature of the exposure. At present, marine-related cyber incidents remain ambiguous. There is no present standard across the industry for how to cover this kind of risk across a wide spectrum of peril, and there is no certainty on whether these risks fall within the marine market or the cyber market.

“The general consensus currently places risk of physical loss in the marine market, while the risk of data loss is placed in the cyber market. This has been the broad approach so far, and this continues to evolve as ships grow increasingly complex in their operations, taking into account things such as autonomous systems, remote data monitoring and data-rich supply chains.”

He added that associating cyber issues with marine or property and casualty insurance can be confusing as there is a broad definition of what a cyber issue constitutes and the proper insurance coverage that follows.

“For example, it is tough to differentiate a hack and a malfunction in terms of potential property or casualty loss. This is why many marine insurers have chosen to exclude cyber-related insurance from their portfolios,” elaborated Rama.

“This said, QBE is very open to discussing and working with its marine insureds to understand their exact needs. If cyber happens to be a very key concern for them, we are always more than happy to work with them to see how we can underwrite those risks.”

CYBER SECURITY

The North of England P&I Club, its director (loss prevention) Colin Gillespie told The Marine Insurer that the club does not define what events are a result of a cyber-attack or IT issues.

P&I LIABILITIES

“A hardening market increases

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“Furthermore, a hardening market increases spend on core insurance cover, limiting resources to pay for additional protection. This is despite cyber threats being a real problem and not covered by the existing standard policy.”

The West of England P&I Club’s senior underwriter, Chris South, told The Marine Insurer that at the moment, there is no exclusion in the cover provided by the International Group (IG) of P&I Clubs for a P&I loss caused by a cyber-attack, primarily because there is no corresponding exclusion in the reinsurance programme which supports the cover.

Gillespie said: “Club cover does not spend on core insurance cover, currently exclude P&I liabilities arising from cyber risks. This means that our limiting resources to pay for members benefit from the same level of P&I cover for a claim arising from cyber additional protection.” risks as they would a traditional risk. As always, cover is subject to the club rules.”

Gillespie, Chandran, AXA XL’s head of Gustaf Kristiansson, marine (Asia Pacific) Sundeep Khera and Markel International Markel International’s marine underwriter Gustaf Kristiansson told Marine Insurer EXCLUSION CLAUSE that there is demand from ship owners for cover for damage In other areas of marine insurance, the market tends to use arising from cyber-attacks, although the three companies are a standard exclusion clause which is CL380. This specifically seeing this at varying levels. removes all cover for cyber-attack even where the cyber-attack Rama said that the Petya attack on Maersk made many indirectly causes damage. shipowners and the entire shipping industry “sit up and realise Kristiansson said that this is one factor in discouraging more that these risks are real, and closer than they think”. ship owners from taking up cyber insurance.

Khera said: “The cyber covers currently offered in the Kristiansson said: “Such product inadequacies have market vary hence the kinds of damages insured are nonunsurprisingly not driven take-up rates of cyber insurance standardised. The aim of such cyber covers is to cover cyber amongst shipowners. Additionally, cyber cover is not a incident impact on a vessel’s operational capabilities.” regulatory requirement of port authorities, which is different Cyber risk insurance typically covers costs associated with from the emphasis placed on hull & machinery cover and P&I.” cyber extortion and data loss, business interruption or trade He said that while there have been attempts to remove disruption, depending on the company’s requirements.

CL380 from the standard hull and war cover, these fell through Gillespie said that the North P&I club has recently entered as such an exclusion does not translate into actual cover. The into an agreement with cyber-risk management consultancy policy has also never been tested in a court with regards to Hudson Analytix-Cyber to offer members a discounted rate protection for a cyber incident. for using the latter’s HACyberLogix platform. The platform South explained: “The key is whether the software/virus provides advice regarding club members’ organisations’ used in an attack was created with malicious intent to cause policies, processes, procedures and technologies that harm; this distinguishes a cyber-attack from an incident contribute to their cyber security stance. caused by defective software that brought about unexpected However, Kristiansson said that the cyclical nature of results, which would not trigger the exclusion cause.” shipping means that in a difficult shipping market, ship owners The CL380 clause, said South, is very strongly worded in may be less inclined to be covered for cyber attacks. favour of the underwriter through the use of words “in no case” He said: “During the soft market conditions of recent years, and “directly caused by or contributed to” which effectively there was an increasing focus on innovation in the marine neutralise any argument over proximate cause. market. This led to a wave of developments including the use However, if the cyber-attack was an act of terrorism, then of vessel tracking Automatic Identification System (AIS) data that would be outside Club cover and owners would have to and cargo radio-frequency identification (RFID) technology as look to their war risks polices for cover, though many such underwriting inputs.” policies also include CL380 exclusions, explained South.

Kristiansson continued: “Such innovation also included To determine if the cyber-attack was a terrorist act, South the introduction of specific cyber products for shipowners. said that, this would be based on English law, in the Terrorism However, such products have not become standardised or Act 2000, which looks to the motive of the perpetrator and institutionalised in the market, with take up remaining low. whether it was for “advancing a political, religious racial or Additionally, amidst the distractions of the current trading ideological cause”. environment including the Lloyd’s ‘Decile 10’ review and the South said: “The interesting issue is what is an ideological reduction in capacity leading to a hardening in market conditions, cause? Could, for example, radical environmentalists be the focus appears to have temporarily shifted away from deemed to be pursuing an ideological cause? Terrorism is not innovation, pushing cyber products back down the agenda. limited to bombs and shootings but includes acts ‘designed The Marine Insurer | September 2019

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CYBER SECURITY

(MPA) opened a 24-hour maritime to seriously interfere with or seriously cybersecurity operations disrupt an electronic system’.” centre (MSOC).

On their part, ship owners and The MSOC will monitor and correlate charterers are becoming increasingly data activities across all maritime critical aware of the risks they face should they fail “The key is whether the software/ information infrastructure (CII) on a to adequately protect their cyber systems.

24-hour basis. Through this, the centre Speaking at the recent CYBER UK virus used in an attack was created can detect and monitor cyber attacks by 19, a conference hosted by the UK’s analysing activities in the IT environment; National Cyber Security Centre, AP with malicious intent to cause harm; detect anomalies and threats; and respond Moller Maersk’s head of cyber security to the cyber attacks, using available compliance, Lewis Woodcock said that this distinguishes a cyber-attack from an technology solutions. following the Petya attack, the Danish The MSOC aims to boost Singapore’s group had to balance the need to incident caused by defective software.’’ maritime cybersecurity posture through continue operations, while restoring its early detection, monitoring, analysis IT networks.

Chris South, and response to potential cyber attacks, Woodcock said that rebuilding the West of England P&I Club enabling MPA to work closely with CIIs to networks was mostly a manual process safeguard maritime CIIs and investigate that took days and relied on advice from any cybersecurity threat or incident. MPA will also build key data customers, vendors and customers. linkages between MSOC and Singapore’s port operations control Woodcock recounted: “That recovery operation really relied centre in order to comprehensively and promptly respond to heavily on human resilience: we went about rebuilding our cyber incidents.

IT infrastructure over a period of about 10 days, during which In South Korea, the new Minister for Oceans and Fisheries, time we were doing all we could to maintain normal business Moon Seong-hyeok, also known as Dr Daniel Moon, has made operations.” cyber-security one of his priorities.

Woodcock said that it is important to understand core Dr Moon, formerly a professor at the World Maritime business processes and understand everything about the University, said in April 2019 that cyber-security, along with systems and applications on which the operations depend. autonomous ships, artificial intelligence, big data, and drones, He added: “From there you can really get the criticality of are major issues in the industry today. them and you can really understand how to protect and secure Responding to the growing need to guard against cyber attacks, and also recover – crucially in that order. This really requires in March 2019, the Korean Register of Shipping and South Korean more of a balance between the preventative measures and also security solutions specialist Hanwha Systems announced a joint your recovery measures.” research project relating to cyber security protocols.

A spokesperson for Japanese shipping group NYK Line told Under their agreement, KRS and Hanwha Systems, will The Marine Insurer that the company has steps in place to jointly develop cyber security protocols for military and guard against cyber attacks. The spokesperson said: “Through Below: In Singapore specialised vessels, based on KRS’ cyber security certification and the intrusion detection system, there is monitoring and detection the recently opened Hanwha Systems’ security solutions for military communications. for unauthorized access or intrusion by IDS and 24/7 monitoring maritime cybersecurity West of England’s South noted efforts at the national level, by the security operations centre. This detects any compromise of operations centre (MSOC) will monitor and but emphasised that eventually, ship owners are responsible our corporate website and we use sandbox technology to detect correlate data activities for guarding against cyber attacks. malicious network traffic. We also have a computer security across all maritime He said: “At the West we are working hard to raise awareness incident response team to define procedures, communication critical information infrastructure (CII) on a in all our markets of the vulnerability to cyber-attack facing channels and recovery in the event of a critical incident.”

24-hour basis. shipowners. We are emphasising the need to take cyber South said that cyber preparedness is becoming a legal protection seriously and also outlining requirement for ships and is the legal implications and potential undoubtedly already one of the loss of reputation for those who neglect factors that may be assessed to to take action in defence of their establish whether a ship is seaworthy, computer systems. Likewise many according to The Hague Visby Rules. governments are making great efforts Maritime cyber-security has to raise awareness among the shipping become a priority for governments community but ultimately it is for and companies, at least in the shipowners to ensure that all possible developed world. steps have been taken to counter the On 16 May this year, the Maritime possibility of cyber-attack.” and Port Authority of Singapore The Marine Insurer | September 2019

MARINE | TECHNOLOGY In association with NORTH P&I CLUB

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Alvin Forster Deputy Director (Loss Prevention)North P&I Club

The insights provided from this easy availability of data can be used to help shipowners optimise the performance of their vessels, driving more efficient operations and help tackle future challenges. The looming introduction of the 2020 fuel sulphur cap is a prime example. Depending on a shipowner’s choice of compliance method, they could find themselves at a commercial disadvantage with a competitor who opted for a different approach. Looking further ahead, the IMO has set the shipping industry ambitious targets on decarbonisation.

It will require a huge change in many aspects of shipping – from design to operations to regulation – and it’s unlikely that one solution will resolve all the challenges.

Part of the solution to both these challenges could be vessel performance optimisation.

This has the potential to reduce fuel consumption, resulting in reduced operating costs and lower CO2 emissions.

DRIVING FORWARD WITH DATA

Optimising the performance of a vessel ultimately relies on making the right operational decisions. Decisions need to be based on the best available information and when it comes to data, sometimes bigger is better.

A vast amount of data can be collected, not only from the vessel itself but also from external sources.

Systems that consolidate the data collected can then quickly analyse the information using complex algorithms and, in some cases, artificial intelligence. This can then prove to be an effective decisionsupport tool.

An increasingly popular application of this process is fleet performance monitoring. Data is collected and analysed by individual vessel, a specific class of vessel, or the entire fleet. This information can be used to improve individual vessel performance as well as allowing remote monitoring and performance benchmarking of the fleet by shore-based staff.

Left: enginei by UK based Royston.

This is an energy management system that, using dedicated sensors, monitors fuel usage, tank monitoring and voyage data in real time.

There are several fleet performance systems emerging, ranging in scope and complexity. One such system is SMARTShip from Singaporebased Alpha Ori. SMARTShip is a platform that uses thousands of onboard data points. It monitors a vessel’s equipment by interfacing with existing outputs and uses realtime data such as vessel speed, fuel consumption and other essential voyage information. This allows for rapid and more accurate analysis of ship systems such as engine control, navigation, cargo handling, power management, hull stress etc.

Combined with route tracking and weather monitoring, this generates guidance on voyage optimisation which aims to achieve maximum fuel efficiency, whilst following a safe passage plan.

Targeting a different sector of the market is enginei by UK based Royston. This is an energy management system that, using dedicated sensors, monitors fuel The Marine Insurer | September 2019

Image: Courtesy of Royston

North P&I Club has recognised that data is becoming increasingly valuable in shipping. As technology and satellite communications improve, it is easier to harness and take advantage of this information.

Image: Courtesy of Alpha Ori

Optimising performance through data

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MARINE | TECHNOLOGY In association with NORTH P&I CLUB

usage, tank monitoring and voyage data in real time. The platform allows the vessel crew and the shipowner to better understand the fuel costs associated with each mode of vessel operation and as a result each factor can be optimised accordingly.

performance’ warranties in a charterparty, the actual performance of the vessel can be accurately monitored and compared to the criteria stated in the charterparty. It could also give better insight into the effects of any hull fouling.

OTHER USES

CHALLENGES

Vessel performance optimisation systems can allow for remote monitoring and diagnostics of ship based machinery which can then be used as a proactive predictive maintenance tool by monitoring trends and sending alerts.

Another advantage of this technology is that it can provide transparent and reliable recording of operations which could assist with emissions data collection requirements or help a shipowner demonstrate environmental compliance.

Consider a vessel entering or exiting an emission control area (ECA). Systems that can detect when fuel changeovers take place by recognising changes in tank levels or fuel system valve movements can correlate this information with the vessel’s position and time. This provides an automatically generated record of the operation and proof of compliance.

Where there are ‘speed and

The technology is still developing and there are challenges to be overcome before vessel performance optimisation systems become widely accepted.

Typically: •Incompatibility of monitoring systems with some outputs of ship’s equipment • Increased reliance on the reliability of sensors •Satellite coverage, bandwidth and data costs • Use of data as evidence and whether it will be discoverable by an opposing party.

A key consideration is to ensure such systems are used to support the ship’s crew and not to undermine or micromanage them. Used correctly, these systems can be effective decision-support tools. By having better information, the crew can make better decisions and be more aware of the importance of efficient operation – therefore changing crew behaviour for the better.

CUTTING THROUGH THE JARGON > Digitisation and technology has been a significant disruptor in many industries and shipping is no different. New terms are emerging, but what do they all mean? > Big Data: Extremely large data sets that can be analysed to reveal patterns and trends. > IoT: Internet of Things, sometimes called IIoT (Industrial Internet of Things) - sensors, equipment or systems that are connected to the internet and communicate with each other without any human interaction. > Artificial Intelligence (AI): also known as ‘machine learning’, computer systems that learn, adjust, and improve based on the data fed to them. > Algorithm: A mathematical formula or process used to analyse data.

The Marine Insurer | September 2019

Immersive training Immersive technologies, such as Virtual Reality, have become much more affordable and accessible in the last few years. Their best wellknown application may relate to enhancing gaming experiences, but they are now also emerging as a new training tool for seafarers.

Mark Smith Executive (Loss Prevention) North P&I Club UNREAL REALITIES

Immersive technologies are generally categorised as Virtual Reality (VR) and Augmented Reality (AR) with everything in between classed as Mixed Reality (MR).

VR is a completely digital world - an interactive computer-generated experience in a simulated environment.

AR is where the digital world overlaps

MARINE | TECHNOLOGY In association with NORTH P&I CLUB

The use of VR training is being used by some companies that do not have the resources to develop their own ship simulators.

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by some companies that do not have the resources to develop their own ship simulators. They are attracted by the flexibility of use that VR brings and how a trainer or supervisor ashore can participate in real time, providing support and feedback.

The challenge with any form of training is engagement. This is often linked to how realistic it is. If the trainee doesn’t fully engage then there is less chance of that individual retaining much of the course content, regardless of the subject matter.

However training which uses immersive technology is proven to increase knowledge retention.

VR’s immersive experience claims to engage a participant’s auditory, visual and other senses. It mimics the real world and can safely push operational boundaries to crisis point.

One such technology provider is v360marine and they claim that using immersive technology in training is proven to increase knowledge retention.

They provide vessels with a complete VR kit which is pre-loaded with a specific training programme. Examples include: Enclosed space entry training: VR sets can add realism to the scenario and allow remote monitoring to ensure that

Right: An engineer can download the layout of the engine room on their smartphone which is then placed into the VR headset.

AUGMENTED REALITY

Above: SeaBot XR turns a person’s smartphone into a VR set by providing learning applications and a cardboard box headset.

the crew are following safe practices and procedures. The experience can be heightened by having another remote participant introducing commercial pressure and adding additional hazards.

Crane operations: The offshore industry is already using VR for remote training and re-familiarisation for crane operators. This avoids the need for extensive travel to training centres.

Fire training: A virtual replication of the vessel allows for various firefighting scenarios that can be modified mid-exercise to further challenge the trainee.

The use of VR training is being used

A particular application of AR is allowing crew to locate piping, systems or points of interest without removing panels or floorplates etc.

This is used extensively for familiarisation training where systems can be physically traced on the vessel. Procedures and instructions are called upon through the digital interface making fault finding safer and simpler.

BECOMING IMMERSED

Effective training that stays with the trainee is an ongoing challenge for the industry. Ship simulators have already proved effective in helping to provide realistic and engaging training, but they remain out of reach for some. The flexibility afforded by VR sets combined with the gamification of learning could prove to be a useful additional training method. www.nepia.com The Marine Insurer | September 2019

Image Source: VR Marine 360

VIRTUAL REALITY TRAINING

Image Source: SeaBotXR

the real world. An example is ‘Pokémon Go’ where, through a smartphone, the image of the real world has digital images superimposed to make it look like real life.

The use of virtual and augmented realities for training is gathering pace in many sectors, but would it work for the maritime sector?

Although VR sets are becoming increasingly more affordable and are widely available in most electrical stores, there is another way to spread VR to a wider audience – using a smartphone.

SeaBot XR turns a person’s smartphone into a VR set by providing learning applications and a cardboard box headset.

Their ship familiarisation training application provides new crew with the layout of the ship prior to joining. For example, an engineer can download the layout of the engine room on their smartphone which is then placed into the VR headset. This allows the engine room to be explored and a series of tasks can be set.

Image Source: VR Marine 360

GOING MOBILE

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MARINE | SALVAGE

The 2012 accident off Isola del Giglio in Italy, saw compensation to victims, the costs of the wreck removal and dismantling of the ship, among other expenditure, push the final insurance bill towards the $2bn mark and beyond.

At the time, much debate centred on pressure brought to bear by the coastal state to have the vessel removed in one piece from the accident site for scrapping, despite the fact on-site dismantling and removal would have substantially limited the overall cost of the operation.

This underlined once more the growing involvement by coastal states in high profile salvage operations and the potential costs involved, which far outweighed any anticipated insurance cover. It also emphasised the fact that although liability regimes might be in place to cater for a specific casualty, these did not take into account the power of public opinion and local political interests.

Involvement of potentially conflicting parties during salvage operations, had already led directly to the development of the role of the Secretary of State’s Representative (SOSREP) to take command and control of salvage operations in UK waters.

The issue of compensation for salvage operations has also changed over time as insurers, among others, have been keen to move from the more traditional Lloyd’s Open Form contract.

Use of LOF has continued to decline yearly, while the use of the Special Compensation P&I club clause (SCOPIC) and its costs, was at the centre of a recent Supreme Court judgment in the Renos in June.

SCOPIC was first introduced as a means of recompensing salvors in cases where the vessel’s salved value was potentially low.

At the International Salvage Union meeting in March, cargo interests said they believe they need a stronger presence at the table during the salvage operation. At the meeting John Owen of Bernicia Marine Consultants said the insurance industry was looking to “push back” on LOF. Communication and collaboration between all interested parties was the only game in town, he suggested, while acknowledging that too many cooks could also “spoil the broth”.

Cargo underwriters at the meeting suggested that vessels’ increase in size meant salvage operations were liable to last longer, resulting in increased costs. Andrew Green of AON underlined underwriters’ desire to engage more with salvors to understand the salvage operation, which in turn would may payments faster while Stephen Chapman of Ascot, stressed it was not a question of “railing against salvors” but more about information and engagement.

Speakers made the case for a cargo representative being more involved at an early stage in the salvage operation to ensure assureds understood the salvage process. The multiplicity of cargo interests might make appointing a special representative complicated

The Marine Insurer | September 2019

Industry looks to salvage control following major loss lessons Casualties like the 2012 Costa Concordia casualty (below) resulting in 32 fatalities, have raised the bar for insurers as far as the financial impact of an incident of this kind.

Sandra Speares reports. although others could piggyback on the initial appointment.

Others in the industry would argue that cargo’s interests are within the remit of the Special Casualty Representative (SCR).

Michael Hird, associate director of admiralty at WK Webster comments: “We recognise that in theory, in cases where SCOPIC is invoked, the SCR is appointed to represent all property interests, including cargo, but in reality cargo interests have no say in who is appointed, this being the privilege of owners, and no subsequent involvement or, say, in the SCR’s subsequent attendance and the direction of travel the salvage operations then take.” This, he added, was despite the fact that on ultra large container vessels the cargo invariably represents by far the highest value element of the property being salved.

With vessels becoming ever larger, with greater cargo carrying capacity, the costs of salvaging these vessels will inevitably move northwards, he said. “Whilst recognising the control that salvors have under an LOF in these circumstances, cargo interests are only looking for a level playing field over the destiny of their property and to have an equal say with owners.

“The ability to appoint a cargo representative to attend on board and make recommendations, much like an SCR, would represent a small step forward in recognising the very important role that cargo has in these matters. We do not of course underestimate the logistical challenges this poses where there are a great many cargo interests involved, but that is for those

MARINE

| SALVAGE

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interests, and importantly their underwriters to their concerns and thinking how they could to resolve.” be mitigated.

Captain Mark Hoddinott, senior advisor at Dealing with casualties involving the new Brand Marine Consultants says in terms of generation containerships and cruise ships keeping cargo interests informed of what the has become an increasing concern given “There is a feeling, and I position is regarding a casualty, all International their size. One aspect “is a feeling, and I Salvage Union members agreed a few years ago think the salvage industry supports it, that think the salvage industry to include cargo interests in daily updates of containerships are not adequately equipped the salvage position, whether SCOPIC had been for fighting container fires,” warns supports it, that invoked or not. This works well he says.

Mark Hoddinott.

Tackling the issue of coastal state involvement The issue is not just of placement of containerships are not has been a key agenda item for the International dangerous cargo but a knowledge of ‘what’s Group of P&I clubs since the Costa Concordia in the box’ generally and there continues to adequately equipped for accident. Sam Kendall-Marsden, director of be concern that the ship’s manifest may not claims at Standard Club managers Charles Taylor, accurately reflect is actually on the vessel. “I fighting container fires,” chairs the large casualty group which has been think that the problem of incorrect manifests focusing on outreach with various maritime will carry on as policing the process will Captain Mark Hoddinott, administrations and the memorandums of continue to be almost impossible,” Brand Marine Consultants understanding with several of them.

Hoddinott explains.

The initiative arose from concerns among the Setting aside the perennial problem of insurance and reinsurance market about the corruption, carriage of dangerous goods carries higher rising cost of wreck removal. The International costs and therefore the temptation is there to mis-classify cargoes.

Group has been looking at various large casualties involving Salvage equipment for specialised salvage operations is wreck removal and salvage to try and determine what the main another concern. The equipment is there, Hoddinott says, but cost drivers had been. it may not be in the right place or already in use. In addition, The aim is to formulate a strategy to control costs better investment by salvage companies in multi-million dollar pieces and retain the confidence of the industry, in particular as far of equipment may not make sense in financial terms. “Salvage as reinsurers are concerned. One initiative included putting in is like any other business, you cut your cloth to fit the business”. place non-binding MOUs promoting improve preparedness and He also highlights the shrinkage in salvage operations response as well as closer contact between concerned parties. generally in recent years, which has resulted in smaller players Kendall-Marsden says the outreach process as gone well and exiting the market. there are MOUs in place with the UK, Australia, New Zealand, Some insurers have been turning to state run entities, South Africa and Venezuela. The idea is to continue to broaden notably in China, to conduct salvage operations on their behalf the initiative to other countries in South America and the Far East and this trend has put pressure on commercial salvors. “State for example. organisations are spreading their wings and coming out of their territorial waters,” Hoddinott says.

MARITIME ADMINISTRATIONS One example was the Sewol salvage in South Korea and state MOUs aim to complement existing arrangements like the salvage organisations can come in with a good price for the SOSREP system, rather than conflicting with them. “It is really job while at the same time having the necessary back-up and about preparedness and response, and getting to know each strong operational teams. The Chinese state salvage operation, other and explaining to maritime administrations who perhaps for example, is made up of 11,000 personnel, and an impressive do not know the clubs quite so well, the experience that we array of equipment which includes 12 helicopters. have got and the depth and breadth of cover.”

At the end of the day, Hoddinott says, it all boils down to Requirements of coastal states are a significant cost driver price and state organisations can come in with a price which is in large scale salvage operations and an important part of the well below that of commercial salvors. mix is the impact of operations on the environment. “It is not That said, major salvage companies have done a great deal just about the money it costs to remove the wreck, it is also of work on handling large container ship accidents and will about what form of operation would cause the least damage to always respond, he says. He believes that as accidents go, the environment. When we are considering which option to go insurers are more worried about a repeat of a casualty like the with in a wreck removal operation cost is a consideration but a Rena than the Costa Concordia, not least because the number very important one is the environmental considerations so that of similar vessels in operation worldwide. Both accidents were guides clubs in their decision-making as well.” classic cases of state authorities effectively taking control of the The aim is not to get coastal states to back off during operation and driving the costs up. the salvage but to work with them and, in the case of Costa Kendall-Marsden says “The industry has to withstand that Concordia, this included working with local people to keep kind of loss and still remain viable and provide insurance.” them fully informed and maintaining their confidence, listening The Marine Insurer | September 2019

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2019 HOUSTON MARINE & ENERGY INSURANCE CONFERENCE

Innovation and disruption in today’s marine and energy Sectors The 2019 Houston Marine & Energy Insurance Conference (HMEIC) takes place September 15-17 at the Westin-Galleria hotel in Houston.

The Conference theme for 2019 is “Innovation and Disruption in Today’s Marine and Energy Sectors” with presentations and panels by industry thought leaders and innovators.

For over 50 years, the Houston Marine & Energy Insurance Conference (HMEIC) has attracted the top talent in the marine and energy insurance and admiralty law industries and is the pre-eminent meeting place for the global marine and energy insurance and legal communities.

The Conference is sponsored by Marine Insurance Seminars, Inc., an IRS registered 501(c)(3) not-for-profit corporation, committed to providing and promoting educational opportunities in marine and energy insurance and admiralty law.

Held annually in Houston, Texas, the world’s leading energy hub and an essential port for global shipping, the 3-day Conference offers networking opportunities, continuing education credits for insurance adjusters, brokers and attorneys and keynote speeches that attract a wide array of marine and energy industry professionals.

Over 50 years ago, Henry Bayard, a young Underwriter for Marine Office of America, returned from an impressive Marine Cargo Insurance Seminar in New Orleans, and asked “Can Houston sponsor a Marine Insurance Seminar?”

The answer was a resounding “YES!” And the Houston Marine Insurance Seminar was born.

The Marine Insurer | September 2019

The first Houston Marine Insurance Seminar was held in 1966 at The Continental Houston Motor Hotel at Main Street & Commerce Streets in downtown Houston where University of Houston – Downtown is today. Registration cost for the first Seminar was $10 per person and there were 50 registrants. Since then the Conference, like its host City, Houston, Texas, has flourished into an international meeting place for the marine and energy insurance and legal communities.

Since its inception, the mission of the Conference has been to provide and promote educational opportunities in marine and energy insurance and admiralty law fields by providing

financial assistance it its college and university partners that are educating and developing the marine and energy insurance and law professionals of the future. In the last 15 years, the Conference has donated over $1.2M in program assistance and scholarships to the law schools and universities that it supports.

The registration page is at www.houstonmeic.com

The first Houston Marine Insurance Seminar was held in 1966 at The Continental Houston Motor Hotel at Main Street & Commerce Streets in downtown Houston.

DIGITAL FUTURE IN MARINE INSURANCE

Noria has 35 years of IT core system experience within the marine insurance – working as the main supplier for the largest marine insurance companies globally.

Over the last decade, Noria has invested yearly over 30% of turnover in R&D. As a result, we can offer the most modern technology in the marine insurance sector.

• Self-service and integration of all stakeholders in the insurance process • Statistic and analytic tools for proactive and comprehensive risk management • Automation and modern user experience and collaboration in the insurance process workflow We are a pioneer in cloud solutions with several customers already in operation, and some of the largest customers to go live in the next two years.

www.noria.no

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MARINE

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AGGREGATION

Managing aggregations:

understanding the loss potential

David Roberts, managing director of Standard Asia, part of International Group Club Standard Club, said that P&I Clubs were “ mindful of the impact that IMO 2020 may have on claims. In particular, there is a risk of an uptick in cases of fuel contamination and associated engine problems, which in turn could lead to higher levels of claims activity.�

Rapid growth in the size of vessels and ports has created a new exposure dynamic for marine underwriters, with accumulations of risk in one location creating potential for multi-billion-dollar losses.

Container-carrying capacity has experienced rapid growth during the past 50 years. According to Allianz Global Corporate & Specialty, container-carrying capacity has almost doubled during the past decade. Since 1968, AGCS estimates it has increased by 1,500%.

For marine insurers, these larger vessels mean greater exposure. Limited availability of information as to what is in these containers and where they are located has increased potential for large aggregations of risk aboard a single vessel, without sufficient premium being taken in return.

For ultra large container ships, AGCS says risk concerns have risen following several fire and explosion incidents, as well as groundings and collisions. The largest container vessels also require ports with appropriate specialist infrastructure to unload cargo or carry out repairs.

As container ships grew, so also did the ports at which they berth. These ports, and the warehouses they contain, bring further large aggregations of exposure and potential for losses The Marine Insurer | September 2019

The Marine Insurer examines how underwriters can better manage the increasing exposures arising from growth in vessel and port size from 1 January 2020. far in excess of the premium being charged by insurers.

In 2015, the loss potential for these aggregation risks was demonstrated by a series of explosions at the port of Tianjin in China.

With industry losses stretching into billions of dollars, Tianjin served as a wake-up call about the significant accumulations of value being contained at ports, vessels and warehouses, following earlier warnings from events such as the The TĂľhoku earthquake in Japan in 2011 and Hurricane Sandy in the US in 2012.

In the case of Tianjin, a huge number of motor vehicles was being stored at the port at the time of the explosions, with the sector suffering large losses. Alongside container ships, cruise ships, car carriers and other large vessels have also increased in size during recent decades.

The bankruptcy of Hanjin Shipping, at the time one of the ten largest shipping companies in the world, left marine insurers facing a different type of aggregation risk. Ships carrying billions of dollars of cargo were left stranded across the world, impacting global supply chains.

Several tools are available to help marine insurers better

MARINE

understand the exposure aggregation risks they potentially face, and where peak concentrations of risk are located.

“Traditionally, companies have been using these tools to also manage static marine accumulations – usually the build-up of cargo concentrations in warehouses and in certain cities and geographies worldwide,” explains Mark Phillips, head of sales at Concirrus.

Many of the models that have been developed to support the management of aggregations and risk are based on industry estimates of exposure.

“These tools are prevalent in managing catastrophe exposures but have not traditionally had the processing power to handle moveable risk such as hull or cargo in transit,” he says.

“Traditionally, companies have been using these tools to also manage static marine

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AGGREGATION

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all hazards that could impact marine assets.

“The only way to track and manage aggregations within this context is to monitor and analyse the global situation and context of every single risk on a continuous and real-time basis,” Phillips says.

AIS TECHNOLOGY

“Machine-learning platforms with digital interfaces can do that by incorporating billions of rows of third party and situational data and accumulations – the buildperforming continuous analysis of exposures.

Rather than the user having to run an analyup of cargo concentrations sis, the system does it continuously, flagging or alerting concentrations for further in warehouses and in certain investigation.”

The recent instability in the Strait of cities worldwide,” Hormuz provided an example of how political AIS TECHNOLOGY risks can complicate the picture, and potential The range of tools to track hull and cargo in Mark Phillips, increase aggregation risk concerns. transit has increased significantly in recent years.

Concirrus Steve Harris, senior vice president in The availability of data to monitor where vessels the marine and cargo practice at Marsh and their cargo are is increasing exponentially, with AIS technology allowing a vessel to be located at any given time.

JLT Specialty, said some reports had suggested ships were Recent advances in satellite technology are further enhancing the switching off navigation systems to avoid detection while array of data available to track vessel movements. sailing through the strait.

Tracking the movements of cargo has also gained rapid “In effect, this means they become invisible not only for traction in recent years with a series of technological initiatives the intended reasons, but also to the electronic navigation taking place. systems of other commercial vessels in the vicinity. In a very Among them, IBM and Maersk recently developed an busy waterway like the Strait of Hormuz, especially at night, electronic system to map container journeys between ports this could pose considerable extra risk associated with vessel and digitise the paper trail, allowing all interested parties safety and collision.’’ to track the container. These containers are fitted with sensors which can in turn provide information related to loss CYBER CONCERNS mitigation.

The use of sensors creates possibilities for changes to the condition of cargo to be detected, and loss mitigation action While much of the focus when considering the aggregation risk facing to be taken accordingly. In addition, real-time GPS data could marine insurers has been on the increasing size of ships and ports, the rising be used to identify high-risk locations, which could either cyber exposure facing the sector has also prompted mounting concern. allow for mitigation or for premium adjustments to reflect the Processes that were once manual are now increasingly digitised, such as the increased level of risk. navigation of vessels, are increasingly reliant on connected tools. The digitisaSeparately, several Lloyd’s syndicates partnering with tion of shipping processes has ramped up the cyber exposures facing marine insurtech firm Parsyl to better track the movement of cargo in insurers and this has not gone unnoticed by the industry. transit. Axa XL, QBE, Antares, Ascot, Beazley and CNA Hardy At the inaugural Marine Insurance London conference, held last year in have all adopted Parsyl’s tools following the insurtech firm’s London, a panel discussion examined this key issue and warned of the potential participation in the Lloyd’s Lab initiative. for widespread aggregation risk across the sector.

The firm’s sensors will provide the syndicates, and their The concern is that hundreds, or perhaps thousands of ships could potentially insureds, with data on products that require specialist be impacted by a single cyber incident. transport and storage, including temperature-controlled foods, A cyber breach, which could be malicious or non-malicious, brings potential biological pharmaceuticals and high-tech products. not only for loss or damage to the vessel, but also potential for damage to cargo While data sources such as these can help locate and as well as theft or critical data. monitor exposures, they cannot in isolation provide a view For a marine insurance sector that is now in the process of hauling itself into on overall portfolio exposure. The data can provide inputs for the modern technological age, much of the focus is on making sure the other tools that help model accumulations of risk. aggregation risk of larger vessels and high-value cargo is effectively managed.

Marine exposures also face a range of hazards that extent But without due care, emerging risks such as cyber aggregation could even beyond the physical location of the risk. Across the supply more costly for the marine underwriting community. chain, political risk, technology failure and cyber security are The Marine Insurer | September 2019

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MARINE

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SULPHUR

Sulphur Cap breach

concerns high on insurers’agenda The imminent arrival of new regulation on sulphur emissions from 1 January next year, has left the maritime industry with two questions: are they prepared and what are the consequences of getting it wrong?

Sandra Speares reports.

The Marine Insurer | September 2019

Being prepared has obviously meant making a decision as to which way to deal with the need to reduce sulphur content in fuels: whether to install expensive scrubbing equipment to solve the problem on board the vessel or whether to wait and see if adequate supplies of low sulphur fuel will be available and at what price.

Another alternative might be the use of LNG. Kevin Humphreys, sales manager in the merchant and gas carrier segment at Wärtsilä Marine points out that use of LNG fuel is increasing globally; it has virtually no sulphur content and has the added advantage of reducing nitrogen oxide (NOx) emissions as well. Dual-fuel engines running on both regular fuel oil and LNG were introduced to the maritime sector some 30 years ago by Wärtsilä, so the technology is well-established and proven. Although it is easier to implement for new vessels, Wärtsilä has also successfully carried out a number of retrofitting projects for existing ships.

The use of scrubbers has led to decisions on whether to install open loop versus closed loop systems as open loop technology has attracted much criticism notably as a result of fears that contaminated washwater will be discharged into the sea, and some ports have announced potential bans on their use in national waters.

A scrubber washwater study was carried out last year by the Clean Shipping Alliance with the aim of trying to establish

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SULPHUR

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the likely impact of the use of open purpose of achieving consistency in the loop systems on washwater quality. implementation of the sulphur cap limit, The three-year, Carnival-led study including guidelines to Port State Control collected 281 wash water samples from regarding enforcement. However, 53 EGCS-equipped cruise ships, the Primikiris says “the question remains as “In all likelihood, compliant fuel will largest washwater data set in the marine to whether the various states will adopt industry, which were then assessed the same approach when it comes to be available in the major bunkering against 54 different test parameters by enforcement.

ISO accredited independent laboratories.

“It is likely that states where Emission hubs such as the US Gulf and Singapore The results were evaluated by Control Areas have been in operation classification Society DNV GL’s Maritime already might be readier or keener to for example, to cover demand, though Advisory Services and the data enforce. How the new sulphur cap is compared against various water quality going to be enforced throughout is an there may be some initial shortages in standards, after first confirming that the important issue as to ensure a level samples analysed were consistently well playing field for the various stakeholders more remote bunkering spots.’’ within the allowable IMO criteria and wherever they operate from.” regulatory limits.

In the open loop versus closed loop The EGCS results also compared debate, the main drawback is that there favourably with EU standards according are jurisdictions which have banned or Chris Primikiris, to the alliance, which has both open and placed restrictions on the use of open Hill Dickinson closed loop advocates within loop scrubbers, such as Singapore, China, Belgium and Germany, due to the its membership. washwater issue. There is always the risk that more countries Given the looming implementation of the new rules there will follow suit, meaning that for owners to be compliant in continues to be concern over the impact for shipowners and such jurisdictions, they will have to burn low sulphur fuel oil, their insurers given some of the unknown effects. as they will be unable to use the scrubbers, Primikiris adds.

According to Chris Primikiris, senior associate at law firm Closed loop scrubbers can be used throughout, though Hill Dickinson, there are three points which can be described they are more expensive to install and maintain, take more as the “great known unknowns”, in the sense that even though space on board the vessel and have additional logistical it is expected that there may be issues, the extent of any requirements when it comes to handling the waste kept on potential problems is not currently clear. board appropriately.

FUEL AVAILIBILITY

First is the issue of fuel availability. The key question is whether there will be available compliant fuel to cover demand given also that there have been studies on the matter with conflicting conclusions as to availability.

Primikiris says “In all likelihood, compliant fuel will be available in the major bunkering hubs such as the US Gulf and Singapore for example, to cover demand, though there may be some initial shortages in more remote bunkering spots.”

Another key issue is one of compatibility. This covers two aspects, he explains, notably whether there will be any problems firstly with the vessel’s engines when using the new compliant fuel and secondly when co-mingling compliant fuel from different suppliers.

While with regard to the first point, the position is not clear and owners would have to adopt a ‘wait and see’ approach, preferably with an available action and mitigation plan, if issues arise, with regard to the second point, “it is recommended that, where possible, fuels from different suppliers are kept segregated” he says.

Third on the agenda is the issue of enforceability. In May this year the IMO Marine Environment Protection Committee adopted a comprehensive set of guidelines and guidance for the

CLOSED LOOP SYSTEMS Alvin Forster, deputy director of loss prevention at North P&I agrees that closed loop systems cost more than open loop and are technically more complex. However, it seems that most of the ports or regions that are prohibiting use of open loop will allow closed loop. Therefore, vessels with open loop systems will need to carry and use the more-expensive compliant fuel for when operating in these areas. This might not bring enough fuel savings to warrant opting for the closed loop system, but it will reduce the need for fuel changeovers and reduce storage requirements for compliant fuel, he says.

If, as seems likely the biggest issue may well be the liability for breaches of the new emissions levels and as such this is a problem for the P&I Clubs. What are the implications on policies, as this not an unknown, it is now a known peril?

According to Primikiris “It is questionable whether a breach of the new regulations will be ultimately an issue for P & I Clubs. It has been suggested that failure to comply with the sulphur cap rules could render the vessel unseaworthy, due to owners’ failure to comply with applicable international conventions, national laws and regulations, especially if such a breach were to lead to withdrawal (or suspension) of the The Marine Insurer | September 2019

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MARINE

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SULPHUR

vessel’s class certificate. on PSC competence. The first stage “The usual position under a time of a PSC inspection will be to check charterparty it that is the charterers documentation and accurate records who have the obligation to provide the are one of the best pieces of evidence to “The general consensus seems to be vessel with suitable fuel, whereas the prove either compliance or best efforts responsibility for ensuring compliance were made to achieve compliance.” that there will be enough compliant with all applicable regulation, lies So, what of potential shortages on the owners, and it is therefore worldwide? “Refinery outputs are a fuel available in the major hubs. It important that the charterparty includes complex subject as there are many appropriate wording to protect the competing streams and refiners are is outside these major ports where parties’ respective position.” going to choose the most profitable.

Alvin Forster also highlights issues Outputs also depend on the nature and availability could be a concern. There like the characteristics of the new characteristics of the crude going into VLSFO products, Costs of the different the refinery and this can be influenced fuels and how port state control by geography,” Forster says. is the FONAR system which will allow will enforce this around the world.

According to Scott Poulter, executive One question is whether there will director of Pacific Green: “It’s been said vessel to bunker non-compliant in the be consistency and – perhaps more that refineries will switch away from importantly – fairness.

HSFO to producing just LSFO because event of non-availability.’’

“The general consensus seems to be the profits will be greater. It has also that there will be enough compliant fuel been said that there are many new Alvin Forster, available in the major hubs. It is outside refineries being built across India, the North P&I these major ports where availability Middle East and Asia which will only could be a concern. There is the FONAR produce the higher quality LSFO, so there won’t be enough HSFO to go around. While this may be system which will allow vessel to bunker non-compliant in the the goal in the (very) long term it’s simply not going to happen event of non-availability.” in the short and medium term.”

However bunkering non-compliant fuel could require more He believes that while most of the new refineries which are tank cleaning and disposal when the vessel reaches a port being built are indeed super-modern and will not produce where compliant fuel is available, he explains. “Concerns on HSFO in the short or medium term, there are 700 established availability are not just limited to compliant fuel. A shipowner refineries across the world, and the vast majority show no investing in scrubbers could find a lack of the high sulphur signs of being upgraded to be able to deliver the extra levels of fuel available in some areas if suppliers don’t deem the market refining required for LSFO. sufficient and decide to withdraw.”

“Such an upgrade would need an investment of Following the usual terms in charterparties (and unless the approximately $3bn and there are few refinery owners who parties have agreed otherwise), it will be owners’ responsibility can afford such an investment. Added to which, demand for to maintain and train staff in the use of scrubbers, as it is the HSFO will still be there, with an estimated 4,000 scrubbers case with other equipment and machinery on board the vessel, installed by January 2020 and more to follow, there will still Primikiris says. be significant demand for HSFO. So, in the short and medium term, even if it’s just five to ten years while refineries slowly INSPECTIONS upgrade, shipowners will still be able to reap the financial Training is also an issue where testing during sulphur content benefits.” inspections is concerned. Forster stresses the importance of crew keeping records because port state control inspections are sometimes inaccurate and training is a factor for the inspectors BREAKDOWNS as well as the crew – and probably more so.

Low sulphur might entail some extra work on the part of “Crew should not be afraid to question the PSC inspector. engineers to ensure smooth running. Whether this will lead Although the PSC in some countries is well-developed in this to a large number of breakdowns? According to Forster, this subject, for some this will be new. If PSC want to take samples depends on what is meant by ‘low sulphur’ – which in itself a for sulphur testing, make sure that sampling process is safe term to avoid as there will be three categories from 1 Jan 2020: and ensures a representative sample is taken. We have seen ultra-low (ULSFO max 0.10%), very-low (VLSFO max 0.50%) instances in the past where the PSC inspector draws a sample and high (HSFO >0.50%). These are further categorised as from a filter pot drain where it might not be representative of the distillate (DM) or residual (RM). So, the risks depend on the fuel in use. fuel choice – a ULFSO-DM is very different to a VLSFO-RM. Accurate record keeping is vital regardless of any concerns Furthermore, if choosing a VLSFO-RM product, its characterThe Marine Insurer | September 2019

MARINE

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SULPHUR

35

istics will vary greatly depending on how it is being made or its blend components.

“A product containing a high proportion of heavy cycle oil could have a high cat-fine content whereas a product made from a paraffinic crude could be prone to waxing. And the risk of incompatibility between these products is expected to be great. Good fuel management will require knowing what you’ve got,” he says.

Cat fines in themselves have been a source of considerable cost for insurers in the past and potential re-emergence of the problem has been an additional source of concern.

So, what of the issue of financial penalties? Sam Kendall-Marsden, director of claims at Standard Club managers Charles Taylor says one school In May this year the IMO Marine Environment Protection of thought is there may be issues relating to mechanical breakdown and that could Committee adopted a comprehensive set of guidelines and lead to more casualty type cases, and on the other people saying the situation is guidance for the purpose of achieving consistency in the implelike that of the millennium bug and the industry will have prepared in time. mentation of the sulphur cap limit, including guidelines to Port “The fine situation is an interesting one, because in the case of accidental State Control regarding enforcement. pollution the club will cover but for non-accidental pollution. However if the shipowner knowingly burns noncompliant fuel and receives a fine, that would be a discretionary fine and the club’s board would look to see whether the shipowner took He says such of the club’s activity has focused on the all reasonable steps to avoid the event giving rise to the fine. commercial impacts of the sulphur cap, in particular time The board would be looking at the owners’ procedures for the charterparties where the charterer is obliged to supply the responsible procurement of the right bunkers and carriage of vessel with bunkers. There are many things to consider – the right bunkers. There are therefore two different types of both for those currently under charter and those that will be treatment in this case.” chartered after 1 January 2020.

The arrival of the new sulphur rules has been in the offing “Traditionally-used bunker clauses are unlikely to be suitable for a long time and shouldn’t come as a surprise, he said. and there needs to be a clear allocation of responsibilities on Industry does seem to be preparing. “We are not changing not only the specification of fuel supplied but also what to do rules which we think will respond, the area of discretion is in with any remaining non-compliant fuel and who carries out and the area of fines and whether all steps were taken to avoid pays for fuel tank cleaning. Also, let’s say a vessel breaks down the situation.” through a fuel-related issue, where will the blame lie? Was the fuel supplied by the charterer defective? Or were there failures in onboard fuel management? Was there a failure to exercise due ENFORCEMENT diligence at the commencement of the voyage?

Forster agrees that the main P&I risk is fines for non-compli“With so many scenarios and so much to think about it will be ance. There remains uncertainty on the level of exposure, as important for charterparties to reflect technical requirements, enforcement and penalties are not dictated by IMO – this is particularly in relation to preparing for the switch over, which down to the individual state. Therefore the imposing and level is one aspect covered in our Big Switch documents and which of fines can differ greatly between jurisdictions. From a P&I our FD&D department has been assisting our members with for cover point of view, the existing framework for pollution claims some time.” will remain.

The Marine Insurer | September 2019

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MARINE | ENVIRONMENTAL RISK In association with CITI & The Global Maritime Forum

Poseidon Principles:

Will insurance follow banking’s example to lead maritime shipping into the low-carbon future?

11 major shipping banks introduce the Poseidon Principles - a global framework for responsible ship finance - and will for the first time integrate climate considerations into lending decisions to incentivize maritime shipping’s decarbonization.

The Principles could serve as an inspiration for marine insurance’s role in addressing climate and environmental risks.

Michael Parker, Global Industry Head of Shipping & Logistics, Citi & Johannah Christensen, Managing Director, Global Maritime Forum.

In their latest Special Report, the Intergovernmental Panel on Climate Change warned that “limiting global warming to 1.5°C would require rapid, far-reaching and unprecedented changes in all aspects of society.

The Marine Insurer | September 2019

The need to limit warming to 1.5°C instead of 2°C is urgent and the direct consequences of a failure to do so would include a dramatic rise in sea levels, extreme weather and damage to the ecosystem which together

could be irreversible if emissions are allowed to grow in an uncontrolled and unaccountable way.”

This stark warning makes it clear that all parts of the economy must contribute to preventing and reducing the negative impacts of climate change, including the maritime industry. Around 90% of all global trade by volume is carried by ships and the quantity of goods transported continues to grow as world trade expands. Though this provides passage for goods and services around the world and fosters global economic growth, it also results in significant greenhouse gas emissions, which – if the maritime industry was a country – would put it on par with Germany in terms of total emissions. Given the

MARINE | ENVIRONMENTAL RISK In association with CITI & The Global Maritime Forum

expected continued trade growth, the maritime industry must play its part in the global transition towards a low carbon economy. This is what led Citi, DNB and Société Générale to work with the Global Maritime Forum, Rocky Mountain Institute, University College London and shipping industry leaders to develop the Poseidon Principles – the world’s first global sector-specific and self-governing climate alignment agreement amongst financial institutions.

$100 BILLION

Founding Signatories include Citi, DNB, Société Générale, ABN Amro, Amsterdam Trade Bank, Crédit Agricole CIB, Danish Ship Finance, Danske Bank, DVB, ING and Nordea.

Together they represent a bank loan portfolio to global shipping of approximately $100 billion – around 20% of the global ship finance portfolio. As Signatories, they will integrate climate considerations into lending decisions with the objective to incentivize shipping’s decarbonization. We expect many more banks to join in the near future.

The Poseidon Principles provide banks with a framework and an industry specific methodology for assessing and disclosing the climate impact of their shipping portfolios. They are supportive of the goal set by the International Maritime Organization, to reduce its total annual greenhouse gas emissions by at least 50% by 2050 compared to 2008 levels. Thus, they help banks to align their shipping loans with this international climate goal.

These Principles apply to lenders, relevant lessors and financial guarantors including export credit agencies. They must be applied by all Signatories in all business activities that are credit secured by vessel mortgages or finance leases secured by title over vessel, and where a vessel or vessels fall under the purview of the IMO. The Poseidon Principles have been created as a commitment to

THE NEED TO LIMIT WARMING TO 1.5°C INSTEAD OF 2°C IS URGENT AND THE DIRECT CONSEQUENCES OF A FAILURE TO DO SO WOULD INCLUDE A DRAMATIC RISE IN SEA LEVELS, EXTREME WEATHER AND DAMAGE TO THE ECOSYSTEM

improve the role of maritime finance in addressing global environmental issues. Working in tandem with other climate-focused commitments and organizations such as the Task Force on Climate Related Financial Disclosures, the Principles for Responsible Banking, CDP and the Energy Transitions Commission, they establish a common baseline that provides a standard for banks to work towards their sustainability goals.

As the Poseidon Principles begin to play a larger role in maritime

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finance, collaborations and alignment will prove crucial in the transition to a low-carbon economy. The Poseidon Principles are designed to expand to include other important issues such as recycling and scrapping of vessels and other areas where the collective influence of the Signatories can help improve the contribution the industry and its lenders can make to society.

PARTNERSHIP

The establishment of the Principles is intended to be the first step of a partnership between the industry and its lenders to get fair recognition of what the industry contributes to the global economy as well as from other regulators – beyond the International Maritime Organization – so that the finance needed to accelerate shipping’s decarbonization is positively promoted.

Whilst Poseidon may have been the God of the Sea in Greek mythology and religion, the Poseidon Principles are a very real 21st century framework for the future of maritime finance, and for the essential role the maritime sector will play in delivering global trade and economic development in the sustainable future we need. The question is whether marine insurance will follow bank’s example?

THE FOUR PRINCIPLES THAT MAKE UP THE POSEIDON PRINCIPLES ARE:

> Assessment of climate alignment – Signatories will measure the carbon intensity and assess the climate alignment (relative to established decarbonization trajectories) of their shipping portfolios on an annual basis > Accountability – Signatories will only use data types, sources, standards and service providers established by the IMO > Enforcement – Signatories will work with clients and partners to standardize covenant clauses into contracts to ensure access to high-quality data > Transparency – Signatories will publicly acknowledge their signatory status, and portfolio climate alignment scores will be published annually

The Marine Insurer | September 2019

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MARINE | ASIA

Better capacity, timezone and pricing are driving the preference for local insurers, reports Martina Li. As shipping expertise grows in Asia, so is the demand for localised marine insurance.

Protection and indemnity clubs that have their roots in Scandinavia and London have followed the growth of shipping in Asia by opening branches in either Hong Kong or Singapore, or both.

The last decade has seen a noticeable shift in the centre of gravity in shipping, as China began its ascension as a superpower, with shipping feeding its seemingly insatiable appetite for raw materials.

Hong Kong was the first Asian city to become a shipping centre, vying with Singapore to be a financial hub and for the crown of the world’s busiest container port. The P&I clubs thus chose Hong Kong to open their first Asian outposts.

Richard Macnamara, CEO (HK Branch) at The West of England P&I Club, told The Marine Insurer: “The expansion of the Asian shipowning market over recent years has led to a different approach from the P&I clubs, with many opening branch offices in Asia.

“Initially this would have been in Hong Kong as long ago as the 1980s but more recently Singapore and China. The West of England, for example, opened a Hong Kong office in 1981 at a time when there were just three other P&I clubs in the city. All four of the Hong Kong offices were operating simply as claims service providers. Today, all 13 IG (International Group of P&I Clubs) clubs have a presence of some sort in Hong Kong.”

Macnamara added that one of the most important changes in recent years is that the service provided is no longer limited to claims. Increasingly, the P&I clubs’ services encompass all areas – including underwriting and loss prevention—and, although this may differ from club to club, they have embraced the idea that a high degree of authority can be transferred from the West to the East.

Macnamara said: “In the P&I sector, client choice is driven not only by price but also by the quality of service. Obviously, every club is different but what is certain is that Far Eastern shipowners deserve to have the same timely service from a local office as Western shipowners. All IG Clubs seem to be adopting this fundamental principle, some more slowly than others, but that appears to be the general trend. P&I clubs have taken on board that the transfer of resource and authority from West to East ensures that the highest service standards can be maintained worldwide.”

Norwegian P&I club Gard’s chief underwriting officer, Bjornar Andresen, told The Marine Insurer that as the Asian shipping market developed, the club has opened offices in Hong Kong, Singapore, Tokyo and Imabari in the last decade.

Andresen said: “Marine insurance is international in The Marine Insurer | September 2019

Growing preference for localised marine insurance in Asia nature because ships are trading across the globe. But as local markets mature and offer the products that buyers are looking for so there is growth in the domestic insurance markets – and the development in Asia is no different. Our philosophy has always been to be as close to our members and clients as possible, and that has driven the development of our international offices in the last decade.”

Gard is a fully licensed P&I insurer in Tokyo, Hong Kong and Singapore, which are the three main hubs of marine insurance in Asia. In the last five years, Gard has doubled the number of employees in its Asian offices, with a headcount of 50 now.

Andresen added: “We believe in decentralised underwriting and to offer claims handling close to our Members. Being in the right locations is vital for us - wherever they are trading in the world, we want to be on hand to provide our Members with practical claims management, this is what makes all the difference when disaster strikes. Our presence across Asia is a perfect example of our commitment to offer local support where it is most needed.”

Markel International’s marine underwriter Gustaf Kristiansson told The Marine Insurer that while the dominance of Lloyd’s of London or the Scandinavian market is steeped in history and has led to an entrenchment of underwriting and broking expertise, in recent years, growing capability and capacity in Asia has seen more business go to Asian insurers.

Kristiansson said: “Owners appreciate the benefit of having their underwriters and claims handled locally – the benefit of accessing someone in the same time zone being a considerable improvement in response times and service level. Being closer to the client also helps underwriters develop

MARINE | ASIA

understanding of the nuances of a particular risk and the local trading environment. In Asia, we have seen many P&I clubs, syndicates as well as company markets establish a local presence in order to fulfil their client increasing demand of local service.

Additionally, there has been considerable growth in the supply of local insurers to meet local demand, enabling greater retention of domestic risks. Together, this growth has provided the local owners with large amounts of local capacity and the expertise to cover a broad range of risk types, including all marine lines.

NEXT GENERATION

12.1%

Singapore contributes 12.1% of the global hull premium.

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is much faster.”

Among the Chinese charter operators, which arrange the shipping on behalf of cargo buyers and receivers, those which purchase cover for charterers’ liability tend to go for smaller P&I clubs that are not part of the IG, or the People’s Insurance Company of China.

Charterers P&I Club is one such P&I club that is well received by Chinese charter operators, as their premiums are lower than the IG clubs, based on a survey of 20 operators that The Marine Insurer contacted.

However, there are also some Chinese charter operators that purchase cover for charterers’ liability with the IG clubs, namely West of England and The Swedish Club, due to these clubs’ established presence in Hong Kong. There is also the perception that being insured by an IG club offers greater assurance to ship owners.

The Swedish Club’s director of strategic business development and client relations, Lars Malm, told The Marine Insurer that the club has not yet seen a huge change as to distribution channels in relation to Asian Marine business.

Kristiansson added: “Another factor in this shift has been the transition to the next generation of risk managers and shipowners, not all of whom are bound by historic links of relationship to justify long trips away from home. In some cases though, ship owners might still maintain their leader in Scandinavia or in London, especially if they are long-term buyers of insurance and have been with their leader for a considerable period. This combines the benefits of expertise, local service and the important continuity of long-term relationships.

PREMIUMS The shift in insurance buying habits among Asian customers Malm said: “The premiums have started to come up but not yet is also seen in hull and machinery cover. to the same level as in Europe and other markets. The Asian The International Union of Marine Insurers’ 2018 statistics market has to some extent contracted, mainly due to European show that underwriters based in Singapore, China and Japan capacity scaling down in Singapore. This contraction seems to had formed the top five in terms of global hull premium written be mainly compensated for by Asian underwriters. and this forms 30% of the global Hull premium. Singapore, in “It’s the combination of price and quality that is driving the second position, contributes 12.1% of the global hull premium. buying choice. Depending on who the buyer is, the components This trend does indicate the availability of capacity locally in will be weighted differently. Price will always be very Asia and the preference for asset owners to engage insurers important to operators. Saying that, possibly even local marine domiciled locally. markets are also scaling down somewhat as a result of loss QBE Singapore’s head of marine, Rama Chandran, told The making from marine business.”

Marine Insurer that there has been growing awareness amongst Kristiansson said that premiums have fallen significantly stakeholders on buying trends. over the past 15 years, as more insurers, P&I clubs and Lloyd’s He said: “With a large pool of lead marine insurers in syndicates opened regional branch offices across Asia.

Singapore, the nature of this cover is a top priority, and we as He said: “Unfortunately, the growth in local capacity was not offset by a reduction in capacity in the traditional London and an industry are in heavy discussions regarding implementing insurance Scandinavian markets. Consequently, coverage in this category first and the net impact was to add to the buildforemost, with price as a second most up of (over)capacity in the market important consideration.” (most pointedly in the hull and cargo AXA XL’s head of marine (Asia Pacific) markets), leading to a significant drop in Sundeep Khera told The Marine Insurer premiums. that buying choices are driven by a “A contributing factor in this was “In the P&I sector, client choice balance of both price and quality of cover – at times – a lack of alignment in as both are directly proportional. approach to Asia between a head office is driven not only by price but He elaborated: “Asia-based insurers and its regional operations. This had are able to offer increasing quality of the potential to increase competition also by the quality underwriting expertise, capacity, claims (sometimes companies could be found handling and loss control services in competing against themselves, which of service.” which traditional markets had an edge was another contributing factor to the over the past few years. Additionally, it softening market. “ Richard Macnamara, is an added advantage when the Asia Kristiansson added that the significant West of England P&I Club based insurers are in the same time zone drop in premium levels in marine – the response time to the ship owners coincided with several other market The Marine Insurer | September 2019

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MARINE | ASIA

Hull P&I to save substantially on their events, such as the oil shock in 2014reinsurance costs with the Lloyd’s market.

15 and other natural catastrophes. In While KP&I provides third-party Lloyd’s, this led to the introduction of the “The premiums have started to come liability cover on a fixed premium basis ‘Decile 10’ review process, a programme to ocean-going ships, the KSA offers to restore the financial performance of up but not yet to the same level as in both hull and P&I cover to South Korean the market over the past two years. coastal vessels.

Subsequently, some Lloyd’s syndicates Europe and other markets. The Asian A KP&I representative told The withdrew from certain regions, markets Marine Insurer: “Our plan is still being and classes of business. market has to some extent contracted, conceptualised. South Korean ship Kristiansson stated that this owners feel that it is unnecessary to correction among the syndicates saw mainly due to European capacity have two local P&I providers, and with a Lloyd’s emerging stronger and better single management company, we can cut equipped to build on its reputation as the scaling down in Singapore.’’ costs and offer a larger kitty to owners of most enduring brand in insurance. coastal vessels.”

He said: “It’s that enduring quality Lars Malm, The Marine Insurer understands that that still remains a compelling value The Swedish Club this is part of KP&I’s long-term goal to proposition for clients. Whilst price join the IG, and Moon has been lobbying naturally remains a key driver in certain to join IG’s technical committees as a starting point. A key regions, owners and buyers view quality and continuation as criterion for becoming an IG member is charging premiums for very important criteria for insurance placement. Indeed, the at least five years on a genuine mutual basis. ‘lowest price right now’ is inevitably a more volatile price over KP&I models its structure on that of a mutual insurer but is time. This contrasts with the approach of owners who play providing insurance on a fixed premium basis only. a long-term game with their markets and are rewarded with In June 2019, during a meeting with IG’s chief executive much less fluctuation in their premiums.”

Nick Shaw, KP&I CEO Bay Moon offered to share the club’s In South Korea, the Korea P&I Club’s (KP&I) market share experience in handling two environmentally sensitive salvage among local ship owners is only around 30%, as owners of opertaions with its members. ocean-going vessels prefer to be covered by the International Earlier this year, KP&I handled claims involving the Korea Group of P&I Clubs.

Marine Transport Co., Ltd-operated containership KMTC Hongkong, which caught fire in Laem Chabang port in BIGGER VESSELS Thailand. KP&I also handled claims involving the Panamax It has been challenging for KP&I to attract bigger vessels, as bulk carrier Solomon Trader, which spilled nearly 100 tonnes of many financing arrangements, contracts of affreightment and fuel oil after running aground on a reef in the Solomon Islands period charters require ships to be insured by IG members. in February 2019.

Domestic South Korean ships, including ferries and other vessels that may not be registered with the International Maritime Organization, tend to be insured by the Korea Shipping MARKET SHARE Association’s (KSA) P&I service.

KP&I has made it clear that it wants to capture more market IHS Markit’s data shows that of the 3,090 South Koreashare among South Korean ship owners. flagged ships, just 366 are insured by KP&I. In a press statement, Moon said that coming from the last Still, in recent years, KP&I has been taking steps to make same culture, KP&I can offer better services to compatriot ship itself more attractive to compatriot ship owners. owners.

In November 2017, months after the collapse of Hanjin He emphasised: “If something happens in Busan, for Shipping, which was then South Korea’s largest shipping example, we can be there in two-and-a-half hours. A foreign line, KP&I signed an agreement with the Korea Shipowners’ P&I club may have difficulty processing claims if it doesn’t Association and the Korean Register of Shipping (KR) to understand our culture.” promote collaborative development.

Although KP&I’s focus is on small to mid-sized ocean-going KP&I chairman Park Jung-seok said then: “The growth vessels, the club insures Capesize bulkers, very large crude of KP&I has suffered with the global financial crisis, the carriers and even LNG carriers through a tie-up with the financial troubles of South Korean shipping firms and intense Standard Club. competition from other larger P&I clubs.”

Korea P&I provides the first layer of insurance for such In August 2018, KP&I announced plans to join forces with vessels, which is topped up by Standard Club cover, thereby its compatriot peer, the KSA Hull P&I, to create a third-party satisfying charterers and banks’ requirements to have thirdliability insurer. This could create combined premiums of party liability cover provided by a member of the International approximately USD100 million, enabling KP&I and KSA Group.

The Marine Insurer | September 2019

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MARINE

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MEGA–BOX SHIPS

Bigger

The 400-metre-long, 23,000 teu MSC Gülsün is the first boxship in the world to feature 24 rows across.

container ships increases potential loss and liability Can General Average survive in the modern age of mega-box ship? Peter Birks reports.

The size of container ships has steadily increased over the past 60 years, with MSC recently announcing the delivery of the first of five 23,000plus teu vessels. The 400-metre-long, 23,000 teu MSC Gülsün is the first boxship in the world to feature 24 rows across, giving it up to 1,500 extra container capacity compared to the existing largest container vessels. The 61.5 m wide vessel is the first of 11 giants MSC is set to operate when they deliver from South Korea through to March 2020.

What are the implications of ever-larger ultra-large container vessels (ULCVs) – also known as mega-box container ships – for liability, cargo and hull insurers?

While larger vessels deliver several advantages in cost efficiency, they also come with added problems. These include a smaller number of ports currently capable of handling such vessels, and an increased difficulty in dealing with accidents when they occur, both in terms of dealing with the vessel and cargo, and then dealing with the relative exposure of liability insurers, cargo insurers, charterers, owners, and the owners of the undamaged containers on vessels where General Average is declared.

Dieter Berg, non-executive director at Concirrus and until last year the president of IUMI, noted that “ more and more container vessels will be able to carry far more than 20,000 teu. Whilst these types of mega vessels offer notable cost efficiencies to the shipping industry, the subsequent and significant increase in the value of goods onboard is a cause for concern for the insurance industry. Naturally, this value increase impacts other areas of the supply chain, including growing cargo values of static storage in ports and terminals.”

Berg added that “ another concern is the structural stability of these mega vessels with a length of 400 metres. These long vessels are steadily bent and twisted from the wind, moving water and waves and this in turn, results in steady exposure The Marine Insurer | September 2019

and material fatigue of the steel. In 2013, we saw the MOL Comfort, a relatively new container ship, break her back in two due to structural problems and sunk off the coast of Yemen.” He said that “although we haven’t seen an accident with these ultra-large container ships yet, it is certain that one day it will happen. Huge vessels like these come with massive exposure in relation to pollution, bunker oil and wreckage removal which comes with a lot of liabilities.”

Just getting an affected ULCV to port can be a huge problem.

Chris Beesley, executive chairman C Solutions Consultants (S) Pte Ltd said that “the problem is finding a suitable port and the issue there is size and cargo handling capability, if it is not a port that deals with these vessels then crane height and outreach will likely be an issue. Not all ports are willing to take a damaged ship and that reluctance will be increased if the perceived problem is bigger”.

The years 2018/19 saw several examples of the problems that can arise when a containership journey goes wrong.

The major ULCV incident in 2018 started on March 6th when 15,000 teu Maersk Honam, with 7,860 containers on board, caught fire in the Arabian Sea. Five crew lost their lives. The fire raged for five days before it could be brought under control, destroying cargo in nearly 2,000 containers. Removal and disposal of the waste is an ongoing problem.

7,500 teu Yantian Express (IMO 9229831) was en route from Sri Lanka to Nova Scotia when it caught fire in the North Atlantic in January this year. About 200 containers were identified as a total loss.

The main problem for Yantian Express turned out to be the logistics involving its cargo. Lacking a permit to enter its original destination of Nova Scotia, it had to sail well over 1,000 miles south to Freeport in the Bahamas, where it stayed for several months.

Freeport had neither the facilities nor the physical on-land infrastructure to unload all the containers and deliver them to their ultimate destination (which, considering that the original destination was Nova Scotia, was unsurprising). After the damaged containers were unloaded, the undamaged containers (the owners of which had been hit for general average fees) remained on board for several months until the vessel was able to return to sea and continue its route to Nova Scotia.

An additional problem for containers, once again exacerbated in

MEGA–BOX SHIPS

the case of mega-boxes, is that there will probably be local legal requirements when it comes to importing cargo. These regulatory hurdles would not have been anticipated when the cargo left its previous port (a different destination having been assumed).

Issues can then arise at delivery ports if cargo that is assumed to be sound arrives damaged, because consignees generally have to pay import taxes on the full value of the goods before they are released by customs. Where the goods are, in fact damaged or worthless, consignees could face considerable difficulty in being reimbursed by the authorities.

For any port of refuge, available time will threaten to be a factor.

Ports of sufficient size for ULCVs do not have berths sitting empty for months on end with nothing to do. Container logistics are theoretically smooth and fast. They do not sit comfortably with a container rescue mission that is likely to be complex and slow. If a port has a relatively full order book, what is it meant to say to the containerships arriving, only to be told that one berth is taken up by a rescued vessel and that therefore they are likely to have a twoweek wait at anchorage? The response of the vessel operator in such a situation is unlikely to be polite.

There are few container terminals that, simply as part of their day-to-day operation. do not suffer from congestion. A lack of wharf and stacking space availability would be one of the main challenges an operator would face when requesting a port to accept, not just hundreds, but in the case of a ULCV possibly thousands, of distressed containers, and many thousands more undamaged containers, at short notice.

THE CARGO FACTOR More than three months after Yantian Express arrived in Freeport, operator Hapag-Lloyd noted that, despite the fact that the deadline for submission had long expired, general average (which Hapag Lloyd had declared in January) and salvage security had not been posted for about one third of containers concerned.

With inevitable delays in the arrival of shipments, only the naivest of operators would expect all of their customers to sit there patiently waiting for the cargo to be delivered. If long delays occur at the port of refuge, many cargo interests might decide that, even though the consignments might be sound, now that they have lost their buyer, the consignment is no longer worth the effort, particularly if a large deposit is being requested as part of general average. The owners could well abandon their containers to the shipping line. If the goods in question are subject to deterioration over time, their value to the operator is unlikely to cover their costs, and the container becomes a “virtual loss”, if not a physical one. Alternatively, the shipping line might ask surveyors to establish whether the consignments retain residual value in alternative markets. All of this adds to the complexity.

Gregg Newman of WK Webster & Co – cargo claims settling agents for more than 600 insurers globally – observed that “ it makes me smile ironically how cargo interests are treated in a ship casualty. Without cargo, there would be no need for ships, and certainly there would be no GA.” Newman said that in many ways the MSC Napoli, abandoned in the English Channel in January 2007, was the first major casualty of the modern era. “It was certainly the first where we

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experienced people watching on TV as their own goods were being picked through by human vultures”, and was perhaps the event that shaped the system we operate today. However, Newman said it was evident that these processes were rapidly approaching, or even past, their sell-by date.

The Napoli, at the time the biggest casualty in the world, was only a 4,700 teu vessel and had only 2,400 containers on board. “The bigger the number of vested interests, the larger the pool of service providers each fighting for their share of the cake and increasing the number of stake holders with views on how the issues should be resolved”, said Newman, continuing:” The practical aspects of this are enormous. Armies of surveyors are required.” Also, with casualties, cargo generally is not discharged in a nice orderly manner, into nice functioning container yards, with well-monitored manifestos and records.

Instead, salvors have to take all sorts of factors into account, including stopping the vessel from capsizing as they discharge.

“The areas the containers are taken to are often simply vast open pieces of land, and the containers are stacked like a giant Jenga puzzle”, said Newman.

Newman observed that “The shipping industry still uses paper documents that need to be scanned and sent by email.

Thousands of emails with attachments, in all sorts of formats, mean that we have never printed as much in our lives and it has never been slower to process the paperwork.” He cited an instance where an average adjuster’s office in Greece, with a team of nine, had to deal with 50,000 emails in a single day.

Newman said that “There is, in our opinion, a desperate need to streamline this process and to develop a system that allows for Cargo and Vessel Interests to work in tandem with something approaching trust, if GA is to continue to be a workable solution going forward.” But he was not optimistic.

Beesley said that it was “Commercially inept that for a small increase in transport costs per container, the Ship Owners or Container line cannot or will not seek insurance cover for salvage and GA liabilities so that security can be obtained quickly and cargo on carried”. He felt that “an extension of the GA absorption clause currently in wide use could be factored into the supply chain expense”.

THE MV RENA, A WORRYING PORTENT? The costs and complexities that ensued after the running aground and subsequent breaking up of containership MV Rena were cited by a number of industry figures. The removal of the Rena in 2011 became the second most expensive case in IG history and that vessel only had a capacity of about 3,351 teu.

Chris Beesley, executive chairman at C Solutions Consultants, said that “Containers lost overboard do not conveniently sit together. Different weights and stowage density pose different problems. Finding sunken containers is expensive and the success rate low, but coastal states expect to see no stone unturned”.

The pressure to retrieve lost containers applies as much to empty boxes as those containing environmentally unfriendly products. During the salvage operation, more than 850 tonnes of debris were removed from the area.

The Marine Insurer | September 2019

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MEGA–BOX SHIPS

Dieter Berg said that “It took weeks for heavy equipment to arrive and this was a relatively small vessel compared to these huge container vessels. The salvage operations took five years and the salvage costs were almost €500m”.

Tony Mayle, claims advocate & claims engagement manager, SVP Marine Specialty at Marsh JLT Specialty, said that the operation to remove containers from the vessel was highly challenging. The difficult geographical features and remoteness of the grounding meant that the process to lighter the vessel was incredibly slow. Salvors were only able to retrieve a maximum of six to eight containers a day.

If one extrapolates out from this, a similar incident involving a mega-box vessel with, say, 10,000 containers, would take three and a half years to lighter.

Mayle said that there has long been a disconnect between ship and cargo (other) owning interests in the understanding of this hugely complicated risk transfer mechanism. “There is – in my view – nothing at all wrong with the principle; mutual interests benefiting from an intentional sacrifice or expenditure for the common good of all in the adventure and, therefore contributing to those losses in GA. Cargo owners (for instance) will have a cargo policy that will provide the security on their behalf, the firm charged with collecting the security (usually a General Average Adjuster) gathers all of the security in superquick time and all of the cargo gets released. Ultimately, the adjuster is able to produce their adjustment of General Average and all of the contributing interests pay their shares to the GA fund, indemnifying the shipowner or their hull insurers (mainly) who will have already advanced sums on behalf of the GA community – sums which are allowable in GA.” But Mayle observed that GA did not exist in an ideal world, and at each stage of the process, complications often arose.

“This is naturally exacerbated when we scale up the size and complexity of the casualty and potential number of interests involved. One thing we would say is that you might often see an attempt to address the potential complications of security collection and the potential disruption to the relationship between shipowners and their customers (cargo owners) addressed in the hull insurance policies with the introduction of a general average absorption clause. In effect, this enables the transfer of risk back to hull insurers – creating a mechanism for allowing the contributions due from non-shipowning interests in GA to form part of the claim under the hull policy, up to a certain limit.”

Chris Beesely observed that a total loss was in fact ‘cleaner’ from a legal and logistical point of view, as many of the problems following a large GA event were removed.

IS A PORT OF REFUGE AVAILABLE? The problem with the port of refuge principle is that ports are understandably less keen to be ports of refuge for huge vessels that have suffered an incident far out at sea, for which there is no immediate threat to life.

In a practical sense, the size of mega-boxes, the draft, the height of the container stacks and the time it can take to extinguish container ship fires can lead to a drawn-out process where the ship has to remain at sea for quite some time.

The Marine Insurer | September 2019

“The ships are getting so big and high that unloading the containers is a complex process, as there are very few cranes available that are high enough to unload the containers from the ship.’’

Dieter Berg, Concirrus Dieter Berg said that “if a fire breaks out onboard one of these vessels it is a huge challenge to extinguish. Particularly, if a container starts burning deep in storage there is possibly no way to get the fire extinguished. The other challenge is finding a port of refuge, as some coastal states will not allow a vessel to enter their ports and allow the fire to be extinguished or for rescue and recovery teams to get on board – this is mainly due to environmental concerns. We also need to recognize that there aren’t many ports big enough to accommodate these vessels, which only exacerbates the issue.”

Chris Beesley said that a bigger problem was the physical cargo handling capability, cranes with sufficient height and outreach to remove containers from the top and inner tiers. In the case of a grounded or listing vessel there were virtually no mobile cranes capable of reaching the top tiers. “Anything over a 10% list makes removing containers to lighten the vessels incredibly difficult”.

Dieter Berg said that “the ships are getting so big and high that unloading the containers is a complex process, as there are very few cranes available that are high enough to unload the containers from the ship. It often means significant costs to rent a floating crane which can take weeks or months to arrive at remote locations. Worst case, they would have to be unloaded individually by helicopter.”

Tony Mayle of Marsh hypothesized a scenario where a perfect storm of location, quantity of boxes, stability and size of ship could create a situation where a ULCV would become impossible to lighten and impossible to move. He asked: “What happens then in terms of implications for claims under hull and P&I insurances?”

Dieter Berg said that “We need more effective obligations within shipbuilding to equip vessels with separated cargo departments with water curtains that enable the crew to keep the fire contained to one section and prevent it from spreading into other cargo areas”. He noted the case of CCNI Arauco in 2016, which had 9,000 containers and docked in Hamburg. It burnt for four days even though the firefighters had direct access, and, in the end, they flooded the whole ship with fire-extinguishing foam.

Sean Dalton, chair of the cargo committee of the International Union of Marine Insurance (IUMI), said earlier this year that the increase in average size added greatly to the complexity of

MARINE

firefighting. In discussing whether large containerships might see a differential insurance rating, previously under consideration but not implemented, he hinted that “With more data now, this debate will re-open. Large containerships do indeed present more risk.”

ENVIRONMENTAL COST The environmental and reputational dangers that could ensue from just a relatively few containers falling overboard while a ULCV is at sea were highlighted in a bizarre fashion this June. Over the past year hundreds of pairs of unworn shoes have washed up on beaches from Bermuda to the Bahamas to Ireland and to Orkney.

The source was suspected to be some of the 70 or so containers that fell overboard from the Maersk Shanghai in early spring 2018.

Currently, shipping companies only have to report lost containers if they could become a hazard to other vessels or if they include substances deemed “harmful to the marine environment”, such as corrosive or toxic chemicals. Nike trainers do not count as “harmful” for the purpose of reporting cargo lost at sea. But the IMO has “adopted an action plan to address marine plastic litter from ships”.

Any changes in this sector is only likely to increase potential liabilities, not to mention reputational risk, for shipping lines.

MISDECLARATION An additional complexity is that, when push comes to shove, no-one really knows what is inside each of them. The implications of this, particularly when it comes to misdeclaration and the loading of hazardous materials, are complex.

Much of this will only begin to unravel when it comes to the post-casualty management of the cargo.

Dieter Berg said that “what is important is stricter control of the content of containers before they are loaded on ships, and the content control is very much the responsibility of the shipping line. We must have in mind that estimations state about 20% of containers in transportation are not correctly declared. This poses a big risk, particularly if containers are loaded with dangerous goods such as flammable or explosive products as these types of products must be stored properly on the deck rather than below deck within specific controlled temperatures. We must have a better exchange of data in the transport chain to minimize the risk of a misdeclaration of goods.”

The larger the container ship, the larger the number of slot charterers likely to be involved. In such cases, cargo information is often provided in different formats and might be incomplete. Even with “ordinary” container ships it can take several days to create a database on a workable document that enables interested parties to see even approximately what cargoes are under review, their value and time-sensitivity, to provide a baseline of how to manage the damaged goods on board and ashore.

In the case of a serious fire on a mega-box, there will not only be burnt cargoes, there will also be heat and smoke damage to at-first-glance undamaged containers. Others might have become structurally unsound despite appearing on the surface to be untouched.

But the most significant damage is likely to be contamination by firefighting water, which quite possibly will have contained chemicals and debris from the various products within the

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MEGA–BOX SHIPS

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wet/flooded holds.

Should there be a grounding of a mega-box or a collision below the waterline that breaches the ship’s hull, the consequent flooding would be from sea water. All of this means that any serious casualty to a ULCV is likely to result in a significant number of containers and their contents becoming distressed. The danger then is that the cargo becomes dangerous to humans and the environment. Taking the declaration of the consigner as to the contents will not be sufficient, given the risk of misdeclaration and the concomitant danger of fatalities if the contents react chemically with water, fire or elevated temperatures.

Régis Broudin, global head of marine claims at AGCS, said that: “The large size and capacity of container ships today increases the risk of cargo misdeclaration and therefore of something going wrong. Misdeclared cargo can happen on mega container ships by virtue of their sheer volume. The greater the number of containers stowed, the more chance there is of a mistake, such as storing dangerous cargo close to a hot spot like the engine. Meanwhile, the size of the vessel can make it harder to access a fire and impede attempts to extinguish it.”

The clearing of distressed cargo in containers is therefore a complex and, as a result, a slow process. It needs to consider practical risks (Are containers damaged or not? How can they be handled? Might they break up on lifting?); environmental risks (e.g. hazardous cargo reacting with water and/or heat, possible HFO contamination, possibly seeping into the water in the port); health & safety risks through mould spores or spontaneous combustion; shoreside risk including regulatory risk, logistics failure (lack of required equipment), a lack of skilled staff; and waste disposal.

Waste disposal too is an area where costs have been rising. No longer can everything be towed off to landfill. Local regulations can, indeed, are likely, to contain requirements to separate out goods which can be recycled. When this is added to the previously mentioned problems of logistics involving space and time, the costs can be significant.

IMPACT While the increasing size of containerships is of benefit to operators because of the economies of scale, the increased concentration of containers in a single location means that any loss, should it occur, is likely to be significantly greater. As Dieter Berg observed: “Cargo value onboard these mega vessels is a growing concern in case of a major incident. We must be mindful that such big container ships can have cargo onboard that is worth up to $1bn. Even if you consider 20% of empty container loaded. If you then add this up with the hull value of approx. $300m and salvage costs, one accident involving these ships could easily cost north of $2bn to $3bn. This is a concern, because insurers don’t really know the value accumulation they have on board such a vessel.”

Many observers, particularly on the cargo side, are beginning to ask whether General Average remains fit for purpose in an age when undamaged cargo in an incident-affected ship can remain stranded for months.

The Marine Insurer | September 2019

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MARINE | P&I CLAIMS In association with NAVIGATE RESPONSE

P&I claim costs are closely correlated with levels of media interest Two thirds of the cost variability in P&I claims over 1 million US$ can be statistically explained by variance in media coverage levels.

Dustin Eno, COO, Navigate Response.

The Marine Insurer | September 2019

and the more expensive and visually dramatic the better.

If incidents are graphed based on media interest and claims costs, a strong pattern appears. Most incidents fall around the line of best fit. However, there are some clear outliers and these outliers help us to further understand the causal connection that exists.

On one side of the line, some incidents receive zero, or next to zero, media coverage despite having very high claims costs. These incidents tend to involve damage to cargo or damage to property, but no associated drama i.e. no one was hurt, the damage didn’t happen suddenly (such as a collision) and there was nothing “picture worthy.” These outliers

P&I COST AND PUBLIC INTEREST 6 Log online media mentions

A high level of media interest surrounding an incident tends to be followed by an expensive P&I claim. This is hardly surprising as highly destructive incidents are the most interesting to journalists and they are also the most expensive. However, beyond this obvious connection, there is a causative relationship through which intense media coverage can increase the cost of the incident response.

Oil spill responders and salvors specialise in responding to maritime incidents. They know which resources and how many are required. So, if left to their own devices, with a little oversight, incidents will generally be dealt with effectively and efficiently.

However, add a little public pressure, and efficiency often suffers as authorities begin to demand unnecessary clean-up resources. Add a lot of pressure and the response may be completely taken over by the government or be challenged by overwhelming public interference.

The most expensive barrel of oil in the world is one that’s been cleaned up from the ocean under the watchful eye of the media – costs can easily run to hundreds of thousands of dollars per barrel.

When people see what they believe is a threat to their environment or their way of life they will demand something to be done. And even if all the right things are being done, unless they clearly see and understand the response, they are likely to demand more – efficiency is not a concern, people want to see action

indicate that claims costs alone will not cause media attention.

On the other side, some incidents attract high media interest, but have relatively low claims costs. These can be incidents which initially appear dramatic, but where the actual damage is limited – imagine a highly visible soft grounding on a summer beach.

However, the other factor is that not all media coverage is equal.

Whilst we often focus on the quantity of media interest an incident receives, we mustn’t forget that the quality of coverage is equally important. Large volumes of well managed coverage can even be positive. We recently dealt with a shipping incident which attracted intense media interest because of its compelling visuals, however the claims costs were kept low because (in part) the media coverage was managed effectively. The incident never became alarming and, therefore, governments and the public didn’t see the need to interfere. In fact, the shipping company involved reported increased approaches from new customers because of the high-profile attention their brand received during the incident.

Unmanaged (or poorly managed) interest in a shipping incident can contribute to very high claims costs, but effective media management can generate a positive outcome for the company involved and less of a financial headache for its insurer.

5 4 3 2 1 0

5.5

6

6.5 7 7.5 8 Log incurred claims expenses in $US

8.5

Data from P&I Club claims records and Navigate Response media monitoring. Line of best fit has a correlation coefficient of 0.81

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TECHNOLOGY | WAR RISK In association with Norwegian Shipowners’ Mutual War Risks Insurance Association (DNK)

Digital quantum leap

for war risks insurance of ships The Norwegian Shipowners’ Mutual War Risks Insurance Association (DNK) is using IoT technology to simplify and safeguard daily operations for the owners of 2,700 ships.

Svein Ringbakken, Managing Director, Warrisk.no.

At the end of 2018, the DNK launched an industry-pioneering internet of things (IoT) solution to transform the way it runs its business. This comprises a digital tracking system where encrypted signals about a ship’s exact position are sent by satellite in virtually real time. The data are fed directly into the DNK’s insurance system and to a cloud portal where they can be accessed by the DNK and the insured.

This IoT solution is the first of its kind in the world and has been developed through a collaboration between the DNK and Britain’s Clearwater Tracking. Set to simplify reporting of ships which enter and leave hazardous areas covered by war risks insurance, it also lays the basis for better loss prevention and emergency response, and allows faster introduction of other data-driven solutions for Norwegian shipowners.

The DNK insures roughly USD 224 billion in assets and is one of the world leaders in marine war risks insurance. Some 470 shipping companies The Marine Insurer | September 2019

are covered by the association against possible damage resulting from war, terrorism, piracy and cyber attacks. A strong commitment to using technology for loss prevention through intelligence-gathering and other security measures has been made by the DNK over many years, and the new system strengthens this capacity.

The insurance business is witnessing rapid technological progress characterised by digitalisation and the interconnection of systems. The DNK’s ambition is to be among the leaders of this development in marine insurance. According to its chief executive, Svein Ringbakken, one of the key success factors for the association’s digital projects is making technology investments in close collaboration with shipowners and based on a thorough understanding of real industry challenges and opportunities.

William Unwin, CEO of Clearwater, points out that the unique strategic collaboration with the DNK has strengthened and expanded Clearwater’s

long-time partnership with Orbcomm, the provider of the satellite connectivity solution behind the system.

Originally, the partnership between the two technology companies was built around satellite automatic identification system (AIS) services.

Until now, reporting of trading in areas with a risk of war, terrorism or piracy has depended on approximate information gathered and exchanged through time-consuming manual routines by shipowners and insurers. A first step in the DNK’s digital journey was to allow shipowners to register trips in high-risk areas in a web-based tool more than 10 years ago.

Thanks to its new IoT solution, reporting now occurs automatically as precise vessel position information is fed directly into the Paris insurance system developed by Norwegian company Noria. The automated process liberates the shipowner from its administrative burdens and significantly reduces the risk of errors or failure to file reports on time, which is crucial for the scope and validity of the insurance cover. Furthermore, shipowners who have deployed the system receive a 7.5 per cent rebate on their war risks insurance premiums from the DNK. For the DNK, the automated process offers better control of high-risk exposure, improved capacity for the underwriting team, and a more transparent dialogue with the reinsurance market. The DNK also assumes respon-

TECHNOLOGY | WAR RISK In association with Norwegian Shipowners’ Mutual War Risks Insurance Association (DNK)

sibility for any errors in reporting from ships connected to the system, and the content of the policy adjusts automatically as the ship moves into high-risk areas.

In addition to precise position information, the tracking device can collect other performance measurements directly from the vessel or from other on-board sensors. Several shipowners have already successfully tested sensor integration and additional functionalities of the system, such as live pitch and roll data.

These sets of combined data provide shipowners with a powerful tool for optimising their operations, potentially reducing bunkers consumption, cutting costs and benefiting the environment through lower emissions.

SECURITY AND LOSS PREVENTION Access to real-time, accurate vessel data through a secure portal enables shipowners to identify and mitigate nonconformities at an early stage, thereby improving security for crew, ship and cargo. Data collected by the tracking device can easily be integrated in existing systems through an open and secure API. That increases shared maritime domain awareness between stakeholders on board and on shore.

Another important security aspect for shipowners and the insurer is the stability and independency of the tracking device and the satellite connectivity solution. DNK members have reported several cases of GPS disturbances in certain geographic areas where the tracking system continued to report the ship’s position accurately.

Ringbakken furthermore confirms that incidents such as the recent tanker attacks in the Strait of Hormuz have underlined the great benefits offered for a marine insurers’ emergency handling and loss prevention by real-time, accurate information about a vessel’s condition and location. The difference between knowing and guessing can save lives, he emphasises.

THIS IOT SOLUTION IS THE FIRST OF ITS KIND IN THE WORLD AND HAS BEEN DEVELOPED THROUGH A COLLABORATION BETWEEN THE DNK AND BRITAIN’S CLEARWATER TRACKING. Svein Ringbakken DNK NEW BUSINESS OPPORTUNITIES Following their successful collaboration on high-risk area reporting, the DNK and Clearwater decided to merge their unique expertise, experience and global network in a joint venture which would continue to develop innovative solutions for shipowners and insurers. Registered in Norway, Osprey Solutions was founded in December 2018 and started its business operations in May 2019.

Osprey Solutions provides innovative marine insurance, maritime domain awareness and compliance solutions based on vessel data provided using Clearwater technology.

Several projects have already been initiated with major marine insurers, who are testing the solution in their respective operations.

Osprey Solutions is headed by Irene Philipps, who joins the company from a management position with Norwegian sensor manufacturer and IoT pioneer Disruptive Technologies.

Digital transformation is ultimately not about technology, she says. It is about finding and sharing facts to make better decisions.

And she adds that it is not about one company winning over its competitors, but about securing the future for the entire industry. Shipping and marine insurance are complex ecosystems in constantly changing operating conditions. Fact-based, transparent and real-time information flows between

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stakeholders are a prerequisite for keeping the industry competitive in a digital future, Philipps emphasises.

The joint venture’s vision is to unlock the power of maritime data to help shipowners and their stakeholders make safer, smarter, and more sustainable decisions. Gathering relevant data automatically and in real time enables the collection of updated information from the vessel without impairing its operations.

In addition to its maritime data products, the Osprey Solutions team is working closely with Clearwater’s cyber security unit on the design and development of external threat analysis and monitoring tools for the maritime community.

As organisations seek to digitise, many face an increase in cyber security challenges. At the core of cyber security are decisions about which information risks to accept and how to mitigate them.

For a long time, cyber risk experts at Clearwater have been working diligently with national bodies and the maritime community to understand the tactics, techniques and procedures being utilised by cyber criminals to exploit both primary and supply-chain companies. The majority of these attacks have utilised simple and often automated tools to achieve their aims, and have in most cases been directed at compromised company and employee credentials.

Osprey Solution cyber tools will help shipowners to develop their cyber infrastructure and focus their cyber security investments on those areas of the business which yield the most protection with the least disruption and cost.

These solutions are expected to be available through Osprey Solutions towards the end of 2019, Ringbakken says. He also confirms that the DNK is reviewing its own capacities with regard to cyber security protection and emergency response structures.

There will always be a next step to take if we want to stay ahead of the digitalisation game, he adds.

The Marine Insurer | September 2019

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MARINE | TECHNOLOGY

The underwriting conundrum As insurers continue in their quest to modernise their operations and infrastructure, as well as reap the benefits from powerful technologies such as analytics and predictive modelling, many underwriters are worried that their knowledge and expertise will no longer be required. Concirrus’ Data Analyst, Matthew Madahar disagrees and highlights why he believes that it will be the combination of people and technology that transforms an effective industry into an efficient one.

No one can deny that significant transformation within the insurance market is needed – the financial losses over the past several years speak for themselves. All areas are under scrutiny as the market searches for opportunities to tighten up processes and remove unnecessary expense from the insurance value chain.

Underwriting has often been described as an ‘art’ where good judgement and decision making is exercised.

However, there’s a limit to the amount of information and knowledge a human can retain and recall. With data becoming more and more accessible to us as a result of developments in technology, there are significant advantages that can be gained from its use, enabling underwriters to continue to meet the changing demands of clients within an increasingly competitive landscape.

It’s important to also consider the host of cognitive biases present in the human decision-making process and how technology can help underwriters to try and counter this bias. Insurance Day recently published an article¹ highlighting the importance of removing bias from the underwriting process and how artificial The Marine Insurer | September 2019

intelligence systems can pick up the bias through machine learning.

Having robust machine learning algorithms which base their decisions purely on the available behavioural data rather than on past decisions helps to remove the cognitive bias and provides additional relevant information in a much more detailed way. The analogy I often like to talk about is: traditionally, you may have one or two people who will be responsible for the whole insurance portfolio, identifying trends and then determining the company guidelines, i.e. we should avoid trawler fishing vessels as they are too high a risk. Imagine you then have hundreds of thousands of people who are now responsible for analysing the data, and identifying trends across your entire portfolio, etc. That is what machine learning algorithms allow you to do.

Rather than concluding that all vessels of a certain type carry the same level of risk, the machine learning algorithms analyse the behaviour of individual vessels alongside specific behaviours that lead to a claim and then compare the results to similar vessels.

This approach provides a much more granular understanding of the exposure

In 2017, the Fluvius Tamar was a total loss after sinking in the North Sea. Within our own risk model, we rated the vessel a 4 out of 5 - 1 being the lowest and 5 the highest.

– the benefits of which are twofold: it helps to spot similar vessels that display the same risky behaviours and flag them as high risk and it uncovers vessels with a lower risk. When combined with their experience this insight is extremely valuable in helping underwriters to price and select risk and win new business.

It’s for this reason that we’re likely to see whole fleet policies disappear over time. Policies may start to be written at an individual vessel level; but such an approach may mean an initial increase in administration costs. Businesses need to carefully consider the way forward, but we’re already seeing some clients (who have access to claims information at an individual vessel level) taking this route.

Having access to robust dynamic data can help improve underwriting.

A demonstrable example of this is the Fluvius Tamar. In 2017, the cargo vessel was a total loss after sinking in the North Sea. Within our own risk model, we rated the vessel a 4 out of 5 - 1 being the lowest and 5 the highest. Although it will always be difficult to predict total losses, it did highlight that the vessel was undertaking double the amount of port visits and number of unique journeys per year – both of which were important indicators of risk.

Whilst it wouldn’t have given the insurer the ability to completely mitigate against that risk, by having a better understanding of the vessel’s behaviour, more effective action could have been taken when the policy was originally written.

MARINE | CARGO RISK In association with ZURICH

Trading in high risk countries Contributed by: Munro Marx, Head of Marine, Zurich Insurance Company Ltd (Singapore Branch) At Zurich Insurance, we notice an increasing number of customers seeking alternative risk transfer mechanisms. This is no surprise.

With the digital age in full swing, having quality data to make critical risk management decisions in realtime is no longer a ‘nice to have’ but a ‘need to have’ for supply chain players. With decades of experience with international programs, we find it valuable to share our lessons learned with brokers, partners and customers.

In Marine, we note the importance of thoroughly understanding each market our customers operate in.

When underwriting, we are particularly interested to learn more about markets where the probability of loss or damage to goods in transit is very high. Take for example Africa – a resourcerich continent with an economy predominantly relying on trade, industry in commodities and agriculture, while unfortunately plagued by poverty, crime and violence, political instability, Cargo loads transported by land are often subject to hijacking and armed robbery risks

corruption and fraud. Some customers, brokers and insurers may be oblivious to the dangers cargo is exposed to moving into and out of Africa.

CARGO THEFT Cargo loads transported by land are often subject to hijacking and armed robbery risks. Large heists are usually executed by sophisticated crime syndicates who manage to gain access to sensitive cargo information to carefully plan truck heists operations. One of the methods to gain information is using insiders.

They may provide syndicates with information such as cargo description and value, transport routes, security measures, risk management employed and so forth.

The threat of insiders is becoming more prevalent as companies invest in cybersecurity. Once information is available, a well-crafted crime plan

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will be drawn up and executed with precision. Criminals will employ methods like impersonating police officers and using fake police cars, equipped with blue lights, police signage, sirens and the lot to orchestrate the perfect illegal roadblock, disarming escort vehicles, jamming tracking devices and making off with a truckload of valuable cargo within minutes.

Cargo particularly targeted are electronics, cigarettes, foodstuffs, power drinks, fashion clothing, pharmaceuticals, cosmetics, car tyres / parts, alcohol, metals and phones.

TRANSPORT QUALITY & INFRASTRUCTURE It is especially important to ensure quality transport is used for the hinterland journey in Africa. For example, sensitive equipment should be hauled by air suspension or specialised trucks to avoid mechanical or electrical derangement.

Although many corridors across the African continent offer fair to good road conditions, Africa is extremely vast and special care must be exercised when route planning. Africa consists of 54 countries, with 16 being fully landlocked.

It is advised to use fit-for-purpose logistic operators with local knowledge and expertise to limit exposure to cargo loss or damage during transit. With prevalent delays at border crossings, cargoes such as perishable fruit, vegetables, dairy, pharmaceuticals and other products with short shelf lives are particularly at risk to loss or damage.

Long waiting periods at borders could further expose loads to pilferage either by the truck drivers themselves selling cargo to bystanders, or criminals taking cargo by force or breaking into trailers whilst drivers are away or asleep. Damage to goods caused by road accidents, mostly caused by driver error and fatigue as timeto-market pressures rise, are on the rise.

Port inefficiencies and political instability should also be considered. Apart from occasional flooding, heavy winds and rain during the rainy seasons, other natural catastrophes are not of concern when transporting around Africa.

The Marine Insurer | September 2019

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PROCESS REFORM

Marine and energy risks at the heart of insurer’s reform plans Technology has been hailed as a transformational tool for the global economy and the insurance industry is looking at how it can be used to cut costs and speed efficiencies.

Jon Guy reports.

The biggest issue for the global insurance industry is quite simply a question of process.

Globalisation and the advances in technology have created new markets and new expectations and the insurance sector is making every effort to catch up.

The era of big data should enable the underwriters to better understand the risks they write however the marine classes have particular challenges.

Marine and energy risks are complex and global. They are often bespoke and come with a range of interconnected risks and liabilities that need to be understood and addressed.

This is coupled with the maritime sector’s reputation for being behind the curve on technology and its vulnerability to cyber-attack and disruption.

Insurers have recognised the need to embed technology to drive process reform, reduce frictional costs and ease the ability to place business.

It has been a long process. It has been two decades since the London market announced its process reform programme and the market has seen a series of high profile initiatives launched and fail to generate the traction to succeed.

In recent years electronic claims files and a new Target Operating Model have been in progress but this year has seen Lloyd’s launch a prospectus to reshape the world’s oldest insurance market for the future.

The Marine Insurer | September 2019

Core to those plans are two new exchanges which will allow clients and brokers to better access Lloyd’s capacity.

The issue for the marine market is that the scale of many of the risks requires a syndicated approach to the insurance programme with several underwriters taking a share of the risk.

Lloyd’s has created what it describes as a complex risk platform designed to make the placement of new and bespoke risks easier for both the broker and underwriters.

COLLATE THE DATA In effect the platform will allow business to be placed, issued and bind automatically. Brokers will input the risk they are seeking to cover, and the data to support the risk. The platform will then collate the data and send to the syndicates and underwriters which best match the risk that is to be placed with the data delivered in a set format to allow all underwriters to access the same information.

Lloyd’s say the benefit is that the system will match the risk with the underwriters who are keen to write that type of business.

Secondly has been the creation of the standardised risk exchange which will allow brokers to access a series of set products with the promise that it will take minutes to place business rather than waiting days or hours for responses.

What has raised eyebrows for many was that the example of a risk to be placed on the system was a marine cargo product.

It will see clients agree a range of issues online such as

PROCESS REFORM

“The world is changing.

Technology and data analytics are disrupting traditional business models. Customers are facing new risks as their asset mix shifts from tangible to intangible and consequently, are seeking new insurance products and services to protect their businesses.’’

Bruce Carnegie Brown, Lloyd’s

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“I have been working at Lloyd’s for 15 years and during that time the market has changed and will continue to do so,” he adds. “It is a very exciting time for all at Lloyd’s and we have been really pleased with the response from the market.”

While the plans are grounded in technology Montanaro says the aim is not to dictate the way in which brokers and underwriters access and communicate with the market.

“What we are not looking to do is say this is the system you must use it,” he adds. “The aim to provide the ability for firms to plug in to what we are offering via their own systems. We want to reduce inefficiency and the cost of doing business.”

However, the wider market believe technology will do more than simply create the exchanges.

There is a view that the market can do more with the handling of data to become proactive when it comes the approach to risks.

INCREASING THE BURDEN exclusion in cover and policy limits and the maximum price the client is willing to pay for the cover.

An agreed set of information will be placed onto the exchange by the broker and the data will then be used by the exchange to identify the best available products underwriters have placed onto the system.

Both are designed to take away a great deal of the administration form the underwriting process speeding responses and cutting costs.

Lloyd’s Chairman Bruce Carnegie-Brown said: “The world is changing. Technology and data analytics are disrupting traditional business models. Customers are facing new risks as their asset mix shifts from tangible to intangible and consequently, are seeking new insurance products and services to protect their businesses.

“The industry needs to react to these rapidly evolving business and risk environments so we can continue to provide customers with the support and protection they need to grow and prosper. This means accelerating the development of products and services to meet customers’ needs and creating new business models that support their delivery.”

The exchanges are two of six initiatives that have been proposed and put out to consultation by Lloyd’s.

Peter Montanaro, in the new role as Lloyd’s chief solutions owner has been charged with overseeing the implementation of the six initiatives.

He believes the plans have the potential to redefine the market.

The CEO of a leading technology systems provider told The Marine Insurer the industry needs to look at the way in which it gets data out of its clients.

“We need to get more data without increasing the burden on the client at the point of meeting with them,” he said.

“At present by the time the data gets to the London market it is either in a pdf or in a spreadsheet and needs to be reinputted.”

He believes the market must create a system that reverses the currents data process from front to end. The simplest way would be for the person who is speaking to the client to look to ask the client for a fairly simple data set.

For example, the owner of a high profile vessel or fleet which is looking for hull and machinery cover. The name of the vessel or vessels should allow the underwriter to access thousands of items of data which are already in the public domain, such as size, draft, build date, capacity number of crew and usual trading routes.

“Once we have that data, we can feed it back up to the client for their agreement that the vessel’s measurements and age are correct for instance.”

It would shift the onus to collect data away from the client and onto the underwriter “For London to get its foot back in the door it needs to push the data back to the client rather than the other way around,” he adds. “The data is readily available in many areas of the world. In effect we are looking to create a U-turn in the flow of information.”

The Marine Insurer | September 2019

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PROCESS REFORM

Cargo risks are seen as the area where the prospect of switching to products featuring smart contracts is looking increasingly realistic.

Smart contracts are contracts that are either totally or partially automated by computer code, reducing the time taken to get a policy to the customer and a claim paid. It can carry out various insurance processes such as risk placement,premium payment, warranty enforcement, and claims assessment and settlement.

The smart contracts translate written contracts into computer code in order to carry out tasks automatically in response to external ‘triggers’, such as receiving storm or flood data. They are used to carry out contractual obligations. A simple contract might be coded in its entirety; a more complex contract would use smart contracts to carry out just some of its obligations.

However, where the marine classes and cargo in particular can benefit is in the creation of new sensor systems which can monitor cargoes feeding back data which will enable clients to be paid before they may even realise there is a claim to be made.

Cargo risks are seen as the area where the prospect of switching to products featuring smart contracts triggered by data from independent sources is looking increasingly realistic.

The use of internet of things (IoT) sensors could improve claims services, by helping establish workflows that appoint the closest approved surveyor (using geolocation) to inspect cargo immediately after its discharge from a vessel. IoT sensors could also be used to provide risk mitigation information for customers to take corrective action to prevent or reduce losses if they opt-in to alerts.

The use of sensors and other data-generating devices on cargo ships, and the introduction of intelligent containers means that the availability of reliable, real-time information about the status of cargoes is increasing. Second, there are a The Marine Insurer | September 2019

Insurers getting smart to change marine business The use of smart contracts is set to enable marine insurers to offer better products at a price which more accurately reflects the risks they pose. Jon Guy reports. number of projects under development which have the aim of recording transport data onto a blockchain.

IBM and Maersk have recently developed an electronic system to map container journeys between ports and to digitise the paper trail. It creates the ability to track the container and give rise to a streamlined, efficient shipment process.

The ideal is to create a system where real-time information about the cargo gathered by objective sensors is transmitted onto the record for that cargo on the blockchain.

PROCESS REFORM

This blockchain data could be used by the insurance sector in a number of ways, most notably in the risk assessment and pricing exercise that underlies underwriting decisions, but it can also be used to trigger the execution of smart contracts programmed to initiate the workflows necessary to service claims, where the data indicates loss of or damage to cargo.

The system and smart contract can have the ability to monitor the sensors to the point that the owner, broker and underwriter can be notified should the cargo reach a certain threshold at which risk mitigation action needs to be taken. It could also be used to notify the broker should there be a need for recovery action.

The benefits of the ability to both avoid claims and deliver a better claims management via smart contracts look to be significant.

Potentially as a result of the triggering of the smart contract, claims handlers could receive advice that a claim is likely to occur, with an indication of the details of the damage or loss recorded by the sensor as well as its geo-location.

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action should it need to be taken.

Underwriters have long struggled with how they can better capture real time data and utilising that data to drive more accurate pricing and terms. Smart contract and sensor technology are making the system a reality.

Lloyd’s has set up an insurtech incubator, the Lloyd’s Lab, and one of its first tangible successes has been with smart contract technology.

LOW-COST SENSOR CHIP

Parsyl, was set up to examine the issues of the humanitarian transportation of food and pharmaceuticals to disaster zones, much of which had been spoilt before it arrived where it was needed. As such it created a low-cost sensor chip that can monitor temperature and humidity levels to enable action to be taken if they reached a certain dangerous level.

The scheme was brought to the attention of insurers and after participating in the Lloyd’s Lab they are now collaborating with several underwriters including Ascot and Beazley to create a smart contract cargo scheme.

Lloyd’s head of innovation Trevor Maynard told The GEOLOCATION DEVICES Marine Insurer: “The potential for the use of smart contract is Insurers could benefit from the automated combination of data extremely exciting for the industry. from sensors and geolocation devices with historical “The ability to track and monitor cargo for instance will aggregated data relating to common causes of the kind of loss provide a range of real benefits. If there are set parameters indicated by the combined data. It could enable a speedier that will trigger a payment client can be paid quickly. If a assessment of the extent to which further investigation of the cargo is impaired or destroyed by temperature or humidity loss may be required. the claim is paid which allows the client to reorder the Where the data indicates a possible breach of the carriage contract (e.g. ingress of water due to unseaworthiness), the goods quicker.”

Maynard says the system will also process of ascertaining whether a allow underwriters to price risks more subrogated claim should be brought accurately as the data can be used to against the relevant carriers could also better understand the risk. be initiated.

“It may mean that risks are deemed This could be particularly useful in to be higher and therefore the premium the case of multimodal transportation costs more, but they may also be seen to of containers, where the combined data be lesser and therefor the cover can could be instrumental in ascertaining be cheaper. where and at what point in time the “It will also allow underwriters to damage occurred, indicating which partner with the clients to look at risk carrier might be liable for a breach of the “The stumbling block has been mitigation, to take more steps to prevent contract. a loss from the outset.”

Where the data is unambiguous as to around the ability to create Maynard believes that the smart the actual occurrence of a loss caused contract will be a gradual introduction by an insured risk during the period of sensors at a cost that means they but feels once they are available the take cover, smart contracts could also be used up will be rapid. to make automated pay-outs, although can be included in every container “The stumbling block has been this is only likely to be feasible with around the ability to create sensors at a respect to a minority of insured risks. or cargo, that seems to be a cost that means they can be included in There are options for the every container or cargo,” he explains. implementation of such contracts in problem that can and is “That seems to be a problem that can terms of the vessels themselves given and is being solved. Once the sensors that increasingly, ships, generate being solved.’’ are available the insurance industry will real-time GPS data that could be used react, and I think that reaction will be by smart contracts to identify highTrevor Maynard, swift due to the benefits such contracts risk locations (piracy, war zone, or Lloyd’s and sensor data can deliver.” earthquake) and adjust the insurance premium in real-time or take mitigating The Marine Insurer | September 2019

56

MARINE |

CLAIMS

Sulphur cap

adds to marine insurers’ claims worries The most significant concern currently facing shipowners,and therefore their insurers when it comes to potential claims, is compliance with the 0.50%sulphur cap limit being imposed by the International Maritime Organization (IMO) from January 1st 2020.

Peter Birks reports.

David Roberts, managing director of Standard Asia, part of International Group Club Standard Club, said that P&I Clubs were “ mindful of the impact that IMO 2020 may have on claims. In particular, there is a risk of an uptick in cases of fuel contamination and associated engine problems, which in turn could lead to higher levels of claims activity.”

The rapid rise in the use of “blended” fuels (a hybrid fuel that combines a clean distillate fuel with a Heavy Fuel Oil) could lead to compatibility issues, and this could lead to The Marine Insurer | September 2019

engine problems. If a tanker suffers a main engine failure in a busy shipping lane or port, this could lead to the ship losing navigational control and colliding with either another ship, a quayside, or both. The effect of this was illustrated in early June when an engine malfunction (not the result of fuel problems) led 65,591 gt cruise ship MSC Opera (IMO 9250464) to crash into a Venice dock and a tourist river boat on one of Venice’s busiest canals. While only four people were injured as a result, the incident could have been significantly worse.

Owners, who have overall responsibility for 2020 compliance, will be very dependent on charterers to procure the right type of fuel. If the fuel is not of the right quality and there is damage to the engine, and consequent damage to third parties, then the shipowner might be able to pursue an indemnity claim against the charterer to recover losses. This could result in legal disputes between insurers as to who is responsible for a claim. In its recently published “Marine Trends”, Allianz’s commercial insurance arm AGCS said that “claims arising from contaminated fuel raise difficult questions around causation and who is liable for damage”.

A possible harbinger of troubles to come when it comes to incompatible fuels began in Houston last year. In June, the US

MARINE | CLAIMS

57

comprising 30 of the 46 losses last year. However, fire is on an upward trend. This is linked to two issues: the increased size of ships has increased the chance of a fire, and the impact of any misdeclared cargo is all the greater.

CHEMICAL LEAK One example this year of the manner in which a small leak can cause a disproportionate loss was a chemical leak on board feeder South Korea-operated led 65,591 gt cruise ship MSC feeder containership KMTC Hongkong (IMO 9157753). The vessel caught fire in Opera (IMO 9250464) to crash Thailand’s eastern Laem Chabang port on May 25th. Because the cargo included into a Venice dock and a tourchemicals, officials were forced to evacuate workers and to close three berths ist river boat on one of Venice’s temporarily. Even though the fire was contained before the end of the day and busiest canals.” there were only 35 containers on board the vessel, the estimated damage and losses caused by the leak and ensuing fire – which began in a load of cargo containing the chemical calcium hypochlorite and chlorinated paraffin wax –came to $3m. The fire released noxious smoke and toxic substances into the air, which led to more than 200 people receiving medical treatment. Authorities declared a 15-km danger zone radius in the wake of the explosions which they said were likely caused by other chemicals onboard.

Vessels are becoming larger and more sophisticated, and they are entering waters, such as the Arctic, that they would have avoided a decade ago. Meanwhile, as the sinking of cruise ship Costa Concordia off the coast of Italy in 2011 showed, Coast Guard warned that fuel contamination at the Port of the cost of salvaging a vessel, even one of the same size and Houston was causing engine problems. That problem spread allowing for inflation, is far higher today than it would have to other regions as far apart as Singapore and Panama and been 20 years ago. This is because countries are becoming far affected about 200 vessels. What the incident highlighted was tougher when it comes to environmental requirements, and the incredible difficulty involved in tracking causation (and the cost of salvage has risen significantly as a result. hence blame and liability).

AGCS estimated that an incident involving a fully loaded ultra-large container ship could result in a $1bn to $2bn CHEMICAL LEAK insurance claim, when damage to cargo, hull, salvage and Last year, large shipping losses last year fell to their lowest wreck removal costs are added up. level this century, according to Allianz Global Corporate & Container ship fires continued to be a significant cause of Specialty SE’s (AGCS) Safety & Shipping Review 2019. There large claims. The Maersk Honam fire in March 2018 destroyed were 46 large ships (over 100 gt) lost worldwide in 2018, comaround one third of the 7,800 containers (about 12,000 teu) pared with a 10-year average of 104 and a loss of 98 vessels the on board the vessel at the time. The 13,800 teu MSC Daniela in previous year. Part of the 2018 decline was undoubtedly due 2017, the 9,000 teu CCNI Arauco in 2016 and the MSC Flaminia to quieter hurricane and typhoon seasons, but the long-term in 2012 all led to significant claims. trend is towards fewer losses. One in four losses occurred in Container ship fires are difficult to extinguish and typically the South China, Indochina, Indonesia and Philippines marled to large complex insurance claims. The Maersk Honam fire itime region. Although this was twice as many losses as the took over a month to put out and it was several more months next area in the list (the Eastern Mediterranean Sea) even the before the vessel was able to be taken to a port of refuge and Asian sector was becoming significantly safer, with the number the cargo discharged. The loss will likely be the largest ever of total losses down from 29 the previous year. general average claim.

The main cause of a total loss continues to be sinking,

“In June an engine malfunction

The Marine Insurer | September 2019

58

MARINE | CLAIMS

Establishing the cause and responsibility for a loss can be challenging. The MSC Flaminia loss in 2012 resulted in lengthy litigation, with the various parties contested causation, fault and damage to the cargo and vessel.

CARGO CLAIMS ON THE RISE The past five years has seen a notable increase in cargo claims, with both their frequency and severity increasing. The Port of Tianjin explosions in 2015 – a multi-billion-dollar event – illustrated the increasing risk of a large loss occurring because of rising value accumulations at ports, warehouses and vessels.

Superstorm Sandy in 2012 and the Tohoku earthquake in 2011 also all brought large cargo losses.

Two sectors were seen to be increasing their dependence on marine cover for cargo. At Tianjin the large number of cars in the port led to a suspicion that, far from being goods in transit, some of the machines were being warehoused while still being defined as cargo. A softening of t’s & c’s over the years – “coverage creep” – is an often overlooked aspect of price deterioration. Losses from hail and/or storm can also be significant when it comes to automobiles, and at many ports they continue to be stored in the open.

Meanwhile in the pharmaceutical sector there has been an increase in claims levels because some drugs are very valuable, and others are more temperature-sensitive than the drugs they replaced. Claims resulting from cargo misappropriation were also reported to be growing.

THE CYBER FACTOR Connected technology – the cyber factor, came to life in a very physical form in 2017 with the WannaCry and NotPetya malware attacks, severely impacting several marine operations.

Captain Rahul Khanna, Global Head of Marine Risk Consulting, AGCS, said that “the issue of over-reliance on technology among seafarers is ongoing and we still see a number of incidents where officers and crew have relied too much on technology.

Sometimes replacing common sense decisions with digital inferences is not such a good idea.”

THE END OF UNSUSTAINABILITY? For many years marine insurers, no matter whether the sector hull, cargo or P&I, have been saying that the rates being charged were unsustainable. By 2018 a flexion point had been reached as a result of two distinct but related factors.

1) Losses rise Losses had risen to such a level that many insurers were reporting a combined ratio for marine in excess of 100%, in all major sectors. UK Club, for example (and it was by no means atypical) reported a combined ratio of 114% for 2018/19 after suffering 12 claims in excess of $3m – double the average over the previous 10 years.

UK Club chairman Nicholas Ingelssis observed that, in recent years, generally favourable claims experience and rising The Marine Insurer | September 2019

Right: In June 2018, the US Coast Guard warned that fuel contamination at the Port of Houston was causing engine problems. That problem spread to other regions and affected about 200 vessels.

Inset: The Port of Tianjin explosions in 2015 illustrated the increasing risk of a large loss occurring because of rising value accumulations at ports, warehouses and vessels.

capital levels had depressed premium rates across the market, exposing the underwriting result to increases in claims activity.

“In the past that exposure would have come from the generality of all claims but, over the past 10 years, the shape of the Club’s claims profile has changed. The attritional claims (those with a cost below $0.5m) have dropped dramatically in number and in cost and now represent a third of the total cost of claims as opposed to half, 10 years ago”, he said.

Britannia Club, which terms claims over $1m as large, saw the number of claims rise to 18 in 2018/19, from 13 the previous year.

Interestingly, on the hull and cargo side the increase in loss was on the attritional side. The International Union of Marine Insurance (IUMI) said that, while in general major losses were remaining stable, the continued erosion of the global premium base meant that attritional losses were becoming much more significant.

Although the global fleet grew at around 3% for 2018, continuing a trend, the number of total losses for vessels over 500 gt fell to a 20-year low. Only 21 total losses were recorded last year, and there had been a general downward trend since 2010, with the reduction being seen across all vessel classes.

However, IUMI observed that there was likely to be a spike for Q1 2019, when within weeks of the start of the year there had been a number of significant incidents.

Rama Chandran, Chairman of IUMI’s Ocean Hull Committee, said that “underwriters welcome the industry’s overall improvement in safety but also recognize that increasing size, scale and complexity of new tonnage is affecting the current risk profile”. Chandran warned that there was a potential for severe volatility in a conventional hull portfolio, influenced by the continuing erosion of the premium base. Reduced asset values and reduced activity in some sectors had driven down premiums, and as a result the increased impact of attritional losses had become significant. This, coupled with occasional spike losses, was seriously affecting international underwriting results, he said.

On the cargo side, IUMI cargo committee chairman Sean Dalton said that global cargo marine insurance had been unprofitable for a number of years, because premiums were not technically adequate to cover losses and expenses. But

MARINE | CLAIMS

59

shipping (in its many guises) add a 21st-century angle to insurance principles that, at heart, go back 300 years. Some might argue that marine holds a higher level of prestige in the Lloyd’s market than it merits under current levels of turnover, that it is, as it were, relying as much on its history as on its current economic significance. But the international shipping industry is still responsible for the carriage of around 90% of world trade. The global economy depends on it. Without shipping, intercontinental trade, the bulk transport of raw materials, and the import/export of affordable food and manufactured goods would not be possible.

Marine insurance is far from an irrelevance. The wheels of global commerce depend on it.

THE END OF UNSUSTAINABILITY? going forward the main challenges included larger and more complex risks, NAT CATs, and unknown vessel and port accumulations. He noted that “for many years, accounts have been largely underwritten and priced on loss experience with less attention paid to exposures, which have now grown in size and complexity. Coverage has also broadened significantly.”

IUMI said that the recent spate of shipboard fires was causing concern. These included incidents on the 59,408 gt Sincerity Ace (IMO 9519092, fire on December 31st 2018), 88,493 gt Yantian Express (IMO 9229831, fire on January 3rd 2019), 109,712 gt APL Vancouver (IMO 9597472, caught fire January 31st), 66,058 gt ER Kobe (caught fire March 1st 2019) and 56,642 gt Grimaldi Grande America (IMO 9130937, caught fire March 10th 2019 and subsequently sank). While not speculating on the cause of these particular incidents, IUMI highlighted the relevance of misdeclaration, linked to the improper packing, loading, labelling and shipping of hazardous cargoes.

Seaborne trade also continues to expand. There are more than 50,000 merchant ships trading internationally, manned by more than a million seafarers.

While marine losses make up 15% of the value of claims in commercial losses, they made up 49% in the number of claims, Allianz Global Corporate & Specialty said in its latest Marine Trends report.

There have been relatively few major hull losses in recent years (once again, notwithstanding the spike in Q1 2019). The grounding of the Costa Concordia in 2012, which resulted in a $2bn loss, remains the largest loss of the past decade. There was also the fire and sinking of the oil tanker Sanchi (85,462 gt) off the coast of China in January 2018. In April 2018 the 38,403 gt bulk carrier Sheng Ming went down off Cape Town, and in May 2018 the 10,880 gt bulk carrier Raysut II grounded 18 miles west of Salalah, Oman.

Collisions and groundings continued to cause claims, while the structural integrity of large vessels could be a cause for 2) Lloyd’s acts concern. Cargo liquefaction, the abrupt transformation of solid With losses increasing to an unsustainable level, the second factor materials like iron ore and nickel ore into an almost fluid state, necessary to achieve a rate inflexion was a reduction in capacity. remains an issue for bulk carriers, Liquefaction was thought to This might well have occurred anyway in 2018, with a number be behind the loss of a number of vessels, such as the Emerald of insurers deciding that some lines of Star in 2017 and the Bulk Jupiter in 2015. business would never make money in AGCS noted that the increasing size their lifetime. However, with its 2018 of vessels and accumulations of cargo Performance Review Initiative. – the risk meant that the severity of very “Underwriters welcome the famous “Decile 10” review – Lloyd’s also large losses continued to be a significant acted to reduce the amount of capacity driver of hull claims. Data from the industry’s overall improvement available. In-depth reviews of its worst Nordic Association of Marine Insurers performing 10% of syndicate portfolios led (Cefor) indicated that the costliest 1% of in safety but also recognize that inexorably to marine, where capacity in all claims account for at least 30% of the hull and cargo fell. This led to an uptick value of total claims in any given year. increasing size, scale and complexity in rates, with some sectors (for example, To conclude, claims in the marine yacht) seeing rises well into double digits. sector are on a declining trend, but with of new tonnage is affecting the Marine sits oddly in the commercial increasing volatility as a result of the world. It is a combination of old and increased average size of vessels. This current risk profile.’’ new, with marine insurance being brings about the threat of the “fat tail”, the first sector offered by the London which the reinsurance sector might hope Rama Chandran, market, while technological advances to exploit.

IUMI have meant that cyber and autonomous The Marine Insurer | September 2019

60

MARINE | SHIP SAFETY In association with ALLIANZ

Global marine losses at record annual low level Vessel losses in the shipping sector may be at their lowest level this century – the culmination of a number of safety initiatives, innovations and regulatory responses - but ship owners and insurers cannot rest on their laurels. Many areas still require improvements says Captain Rahul Khanna, Global Head of Marine Risk Consulting at Allianz Global Corporate & Specialty.

It is estimated that the international shipping industry is responsible for transporting around 90% of world trade. There are around 60,000 merchant ships, transporting every kind of cargo. The world fleet is registered in over 150 nations and manned by over a million seafarers meaning the safety of vessels and their cargo is of critical importance.

Only 46 large ships were lost around the globe last year, down by a record 50% annually, according to Allianz Global Corporate & Specialty’s (AGCS) annual Safety and Shipping Review 2019. This is the lowest total The Marine Insurer | September 2019

this century. To put this into context there were 207 large ships lost in the year 2000. The overall decline in losses year-on-year was driven by a significant fall in activity in all the major loss hotspots around the world, for example, the South China Sea, the East Mediterranean & Black Sea, and around the British Isles. Meanwhile, weatherrelated shipping losses halved from more than 20 during 2017 to 10 after a quieter 12 months of hurricane and typhoon activity in North America and Asia.

Today’s record low level of loss activity is certainly influenced by fortunate circumstances over the past year, but

it also underlines the culmination of the long-term improvement of safety in the global shipping industry. Improved ship design, tighter regulation and the growing use of safety-enhancing technology have been a positive for safety and claims. Electronic navigation tools, ship-to-shore communications and the greater use of sensors have the potential to improve navigation, help avoid incidents and reduce the impact of human error at sea – which Allianz research has shown is a primary factor in 75% of claims. At the same time more robust safety management systems on vessels can prevent breakdowns and accidents from turning into major losses. However, while the steep decline in losses over the past year in particular is encouraging, the shipping industry still faces a number of significant risk challenges that could negatively impact the status quo.

AREAS OF ATTENTION

The number of reported incidents on vessels overall (2,698 in 2018) shows

61

MARINE | SHIP SAFETY In association with ALLIANZ

little decline – less than 1% annually. Machinery damage/engine failure is the major cause (see graphic) with the number of these incidents increasing by a third over the past decade. Machinery damage claims in the shipping industry have cost the insurance industry in excess of US $1bn+ alone over the past five years, according to AGCS analysis of more than 230,000 marine insurance industry claims, making it the third most expensive cause of loss for the sector after ship sinking /collision and fire/explosion. In response a growing number of engine manufacturers are now installing “Internet of Things” devices to collect real-time data which can be used to issue recommendations to vessels and carry out maintenance, potentially preventing breakdowns before they happen.

Fires on board continue to generate large losses on ships with the number of reported incidents through 2018 (174) trending upwards.

This has continued in 2019 with a

TOP CAUSES OF SHIPPING CASUALTIES/INCIDENTS 2018

number of incidents on container ships and at least three significant events on car carriers. Misdeclared cargo, including incorrect labelling / packaging of dangerous goods is believed to be behind a number of fires at sea. Regulations and guidelines for dangerous cargo do exist but are not always adequately enforced or adhered to. However, a growing number of ship owners are taking innovative steps to address the issue such as using software to scan bookings to detect undeclared dangerous cargo that requires a deeper investigation.

The greater the number of containers stowed, the more chance there is of a mistake, such as storing dangerous cargo close to a hot spot like the engine room or fuel oil tanks.

Meanwhile, the size of the vessel can make it harder to access a fire and impede attempts to extinguish it while on board fire-fighting capability can be limited. If considerable outside assistance is required in event of a fire at sea significant damage can be done to a ship before this happens, greatly increasing the size of any salvage loss and subsequent insurance claim. It should be industry standard that any vessel, including an ultra large container ship, should have the capability built into its

Region

Machinery damage/failure

1,079

Collision

319

Wrecked/stranded (grounded)

315

Contact (e.g. harbor wall)

208

Fire/explosion

174

Other

603

2,698 incidents in total including 46 total losses Vessels over 100GT only Source: Lloyd’s List Intelligence Casualty Statistics Data Analysis & Graphic: Allianz Global Corporate & Specialty

design to tackle most on board fires themselves. It is very clear that this is not currently the case.

POLITICAL TENSIONS RISING

Meanwhile, as recent events around the Gulf of Oman and Middle East demonstrate only too well, political risk has heightened around the globe and increasingly poses a threat to

IN NUMBERS

The cost of claims 90% of global trade carried by international shipping

1,036

over past

total losses 10 years

46 total losses in

lowest this century.

207 losses in 2000

2018 –

$1.5bn

30

lo fo u n s s e s c au d in 2 ering/s sed by 018 inkin g

value of claims from ship sinking/collision incidents

1

$1bn+

value of claims from machinery damage incidents 1

WEDNESDAY

12

2,698 shipping incidents in 2018. Machinery damage is the top cause

48 piracy incidents

in Nigeria in 2018 – ipsum replacing Lorem Indonesia as the top hotspot

in 2018

544 incidents in 2018 in the

East Mediterranean and Black Sea – the global hotspot

1 in 4 losses in 2018 occurred in South China, Indochina, Indonesia and Philippines – the global hotspot

Wednesday is the most frequent day for losses – 12 in 2018 and 169 in the last 10 years

Source: Allianz Global Corporate & Specialty 1 Based on analysis of more than 230,000 marine insurance industry claims with a value of approximately $10bn by Allianz Global Corporate & Specialty (July 2013 to July 2018)

The Marine Insurer | September 2019

62

MARINE | SHIP SAFETY In association with ALLIANZ

shipping security, trade and supply chains through conflicts, territorial disputes, cyber-attacks, sanctions, piracy and even attacks on vessels and seizures, as evidenced by the taking of the British-flagged tanker Stena Impero by Iran’s Revolutionary Guard in the Strait of Hormuz in July.

Piracy incidents also increased overall Allianz Corporate & Specialty overGlobal the past year with Nigeria replacing Indonesia as the top global hotspot.

Nigeria, and specifically Lagos, is also the location of the highest reported number of stowaway incidents – a long running problem for ship owners - driven by the ongoing migrant crisis in the Mediterranean in particular.

Stowaways and migrant rescues at sea can have serious consequences for ship owners, leading to delays, diversions and growing pressure on crew, as many commercial vessels are not designed to accommodate more than a few people, while repatriation is a complex procedure.

‘‘Fires on board continue to generate large losses on ships with the number of reported incidents through 2018 (174) trending upwards.’’

LOSSES IN FOCUS

THE FLIP SIDE OF TECHNOLOGICAL ADVANCES AND REGULATION

The growing use of connected technology in the maritime sector is a positive for safety and claims. Electronic navigation tools, ship-to-shore communications and the greater use of sensors have the potential to improve navigation and help avoid incidents.

Sensors can also reduce machinery claims through performance moni-

Captain Rahul Khanna The analysis over the following pages coversCorporate both total losses and casualties/ Allianz Global & Specialty incidents. See page 48 for further details

toring and early intervention and help mitigate cargo losses. Yet at the same time accidents continue to happen due to an overreliance on technology – particularly in the area of navigation – so crews and officers must understand its shortcomings and limitations. Learning from these types of accidents and incidents is crucial, as is developing a solid understanding of the fundamentals of sound navigation and situational awareness.

In addition, as more and more shipping systems require connectivity with the shore, so vessels become increasingly vulnerable to a cyberattack. As the 2017 NotPetya malware incident - which caused considerable Total Losses by region: 2018 disruption to the shipping sector - proved, cyber losses are set to Source: Lloyd’s List Intelligence Casualty Statistics Data Analysis & Graphic: Allianz Global Corporate & Specialty become a much more prominent

TOTAL LOSSES BY YEAR LOWEST THIS CENTURY Annual shipping losses have fallen by more than 65% over the past decade – from 132 in 2009 to 46 in 2018 and are now at their lowest level this century. There were 207 total losses reported in 2000 alone.

150

132

129

120

127 111

99

106 89

99

98

90

60

46 30

0

2009

2010

2011

2012

Vessels over 100GT only 8

The Marine Insurer | September 2019

2013

2014

2015

2016

2017

2018

Source: Lloyd’s List Intelligence Casualty Statistics Data Analysis & Graphic: Allianz Global Corporate & Specialty

part of the maritime landscape in future. A cyber-attack against a ship’s navigation system or industrial control system could even result in a grounding or a collision. It does not require much imagination to find scenarios where cyber can pose a danger to shipping, crew or cargo.

Companies are responding with an uptick in cyber security assessments while some insurers are looking to clarify so-called “silent” exposures.

More contingency planning and stress testing of systems needs to be done to combat a growing number of loss scenarios, such as extortion.

Finally, the introduction of regulation limiting sulphur oxide emissions from January 2020 is likely to have wideranging implications for the “three Cs” - cost, compliance and crew. Large ports globally are even considering deploying so-called “sniffer drones” to detect environmental rule-breakers – as ships found not complying with these regulations could face significant penalties. It is obviously important that shipping plays it part in achieving a more sustainable environment but this needs to be done in a way as to not overburden an industry already under pressure. Insurers are concerned about a potential increase in the frequency and costs of machinery breakdown claims with the introduction of low sulphur fuels if the transition is not well-managed. There are also worries that the increased cost of such fuels may lead to cost-cutting in other areas, such as crew training or maintenance.

There is also potential for disruptions and delays to voyages if there is a lack of compatible fuel at a bunker port.

So while there is considerable evidence to support the significant strides the shipping sector has made in improving its safety record in recent years, it is not yet a completely safe and clean industry. Many challenges remain and more work needs to be done.

Find out more about the Safety & Shipping Review 2019 here https://www.agcs.allianz. com/news-and-insights/reports/shipping-safety.html

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